LIBRARY 

OF  THE 

University  of  California. 


GIFT  Oi^ 


Class 


PRINCIPLES   OF   JUSTICE 
IN    TAXATION 


BY 

STEPHEN  E.  WESTON,  A.  M. 

President  of  Antioeh  College 
Sometime  Univei'tity  Fellow  in  Finance 


SUBMITTED   IN  PARTIAL   FULFILMENT  OF   THE   REQUIREMENTS 

FOR   THE   DEGREE   OF   DOCTOR   OF   PHILOSOPHY 

IN    THE 

Faculty  of  Political  Science 

OF 

Columbia  University 


\3  R  A  R')- 


UNI.'     -:3ITY 

0^■ 


1903 


PREFACE. 


The  subject  of  this  monograph  was  chosen  in  1891  while 
I  was  taking  post-graduate  work  at  Columbia  University. 
The  first  draft  was  nearly  finished  in  the  spring  of  1894  when 
I  was  compelled  to  give  up  work  for  a  time  on  account  of 
ill  health.  Engaging  in  academic  work  in  the  fall  of  1894  I 
was  again  obliged  to  set  the  monograph  aside  until  the  winter 
of  1900.  Since  then  it  has  been  completely  rewritten  and 
chapter  VIII  added. 

For  his  constant  interest  and  encouragement  I  feel  greatly 
indebted  to  Professor  Seligman,  for  otherwise  the  monograph 
would  not  have  been  completed.  I  wish,  also,  to  take  this 
occasion  to  express  my  appreciation  for  the  courtesy  shown 
to  me  by  the  Faculty  of  Political  Science  of  Columbia  Uni- 
versity in  giving  so  much  extension  of  time  for  the  comple- 
tion of  my  monograph.  To  Dr.  Alvin  S.  Johnson,  of 
Columbia  University,  I  am  indebted  for  verbal  changes  of 
text  and  for  reading  of  proof, 

S.  F.  W. 
Antioch  College,  Yellow  Springs,  Ohio,  May,  igo^. 


TABLE  OF  CONTENTS 


VAGI 

CHAPTER  1 

Introduction 1 1 

CHAPTER  II 

THE  ORIGIN  AND  NATURE  OF  THE  STATE 

I.  The  Individual  and  Society 19 

II.  Origin  of  the  State    24 

III.  The  Nature  of  the  State 26 

IV.  Characteristics  of  the  State » •  • .  28 

I.  Tht  Voluntary  and  Involuntary  Character  of  Political  Organisa' 

tion 28 

a.  The  Organic  Theory  of  the  State 32 

3.   The  Nature  of  Sovereignty 36 

CHAPTER  III 

taxation,  economics  and  kthics 

I.  Taxation  43 

1.  The  Nature  of  a  Tax 43 

2.  Characteristics  of  a  Tax 46- 

3.  The  Limits  of  Taxation 5** 

II.  Taxation  and  Economics 54 

1.  Taxation  and  Production 55 

2.  Taxation  and  Distribution --  - 60 

3.  Taxation  and  Consumption • 65 

III.  Taxation  and  Ethics * 68 

CHAPTER  IV 

THE  political  BASIS  AND  PRINCIPLES  OF  TAXATION 

I.  The  Social  Contract  and  Taxation 76 

1.  The  Political  Philosophers 77 

2.  7  he  Protection  Theory  of  Taxation 85 

343]  7 


8  CONTENTS  [344 

PAGB 

II.  The  Evolution  Theory  of  the  State  and  Taxation 90 

III.  The  Utilitarian  Theory  of  the  State  and  Taxation 98 

1.  Tk£  Theory  of  Mill 99 

2.  The  Utilitarian  Theory  of  Sax  and  the  Austrian  School 102 

IV.  Social  Theories  and  Taxation 106 

1.  Anarchism 106 

2.  Communism 107 

3.  Socialism 108 

V.  Conclusions  as  to  the  Political  Basis  and  Principles iii 

CHAPTER  Y 
the  economic  basis  and  principles  of  taxation 

I.  The  Physiocrats  and  the  Single  Taxers 116 

1.  The  Fhysiocrats Il6 

2.  The  Single  Taxers : 119 

H.  The  Classical  School  of  Economists 125' 

I4   The  Benefit  Theory  of  Taxation 125 

%4   The  Exchange  Theory, 129 

3»   The  hisuratue  Theory 132 

HI.  The  Productive  Theory  of  Taxation 134 

IV.  The  Utility  Theory  of  Sax 138 

1.  Its  Originality .,  140 

2.  Simplicity  and  Truth 141 

3.  Individual  arid  Collective  Psychology 143 

{iy  Individual  Psychology 145 

(a)  Collective  Psychology  146 

4.  Collective  Needs  empirically  Considered , 149 

(l).  Differences  in  Character 149 

(?)  Political  Factors 151 

V.  Conclusions  as  to  True  Economic  Basis  and  Principles 155 

CHAPl'ER  VI 
the  ethical  basis  of  taxation 

I.  The  Benefit  Theory  of  Taxation i6o 

1.  The  Cost-of  Service  Theory 161 

2.  The  Uahie-of- Service  Theory 165 

(a )  Expenditure 167 

(2)  Property 168 

(3)  Income 169 

(4)  Marginal  Utility 1 70 


345]  CONTENTS 


9 


PAGE 

II.  Ability  as  an  Ethical  Basis  of  Taxation 171 

1.  Ability  and  Property i-c 

2.  Ability  and  Income j  -g 

( 1 )  Meaning  of  Income i  nn 

(2)  Taxable  Income 182 

III.  Ability  and  Sacrifice igy 

I-  Mill   ,87 

2.  Wagner  and  A^eumann 189 

3.  Meyer ,go 

4-  Sax ig^ 

5.  7"^!?  Dutch  Economists iqy 

6.  Edgeworth 20 1 

IV.  Conclusion  :  Ability  versus  Sacrifice 206 

CHAPTER  VII 

ethical  principles  of  taxation 
I.  The  Principle  of  Equality 212 

1.  Rate  and  Source  of  Income 21  ^ 

(i)  Funded  and  Unfunded  Incomes 213 

(2)  Inheritance  and  Gifts 216 

(3)  Monopoly  and  Quasi-Rent  Income 217 

(4)  Income  from  Speculation   220 

2.  Rate  and  Character  of  Income 221 

3.  Rate  and  Amount  of  Income 224 

(i)   Proportional  Taxation 226 

(2)  Progressive  Taxation 2^1 

II.  The  Principle  of  Universality 246 

1 .  The  Justification  of  Exemptions 247 

2.  The  Limitation  of  Exemptions 2c6 

CHAPTER  VIII 

practical  justice  in  taxation 

I,  Assessments * 266 

1.  Declaration  vs.  Doomage 266 

2.  Taxable  Property ,68 

3.  Methods  of  Assessment 270 

II.  The  True  Tax  System 276 

I.  Subjects  and  Methods  of  Taxation 277 

( 1 )  Taxes  on  Consumption 278 

(2)  Taxation  of  Real  Estate 280 

(3)  Taxation  of  Personal  Property 281 


lO 


2. 


CONTENTS  [346 


PAGB 


(4)  Taxation  of  Mortgages 282 

(5)  Taxation  of  Corporations 283 

(6)  Taxation  of  Inheritances 287 

Siate  and  Local  Taxation 290 

(i)  National  Taxes 291 

(2)  State  Taxes 292 

(3)  Local  Taxes 293 


CHAPTER  I 

INTRODUCTION 

A  THEORY  of  taxation  is  necessarily  bound  up  with  funda- 
mental questions  of  political  science,  economics  and  ethics. 
By  abstracting  any  one  of  these  elements  and  making  it 
alone  the  determining  factor,  or  by  giving  it  an  undue  im- 
portance, a  theoretical  solution  of  the  problem  may  be  made 
a  comparatively  easy  task.  But  such  a  solution,  like  most 
schemes  based  upon  one-sided  or  partial  truths,  is  neces- 
sarily defective  and  not  infrequently  Utopian,  The  real 
difficulty  arises  when  "these  factors  are  comprehended  in 
their  full  significance,  or  in  their  true  relation  to  one  an- 
other ;  but  only  in  this  way  can  the  problem  be  fully  under- 
stood in  its  various  bearings,  or  a  solution  be  offered  that  is 
satisfactory  alike  to  reason  and  to  the  requirements  of  jus- 
tice. This  difficulty  is  two-fold.  In  the  first  place  our 
views  will  necessarily  be  colored  according  to  which  of  these 
factors  we  consider  the  foundation-idea  of  our  theory  and 
which  we  regard  as  incidental  or  supplementary ;  and  in  the 
second  place  very  much  depends  upon  our  interpretation  of 
the  fundamental  idea  and  of  the  character  of  its  relation  to 
the  other  factors.  Even  if  but  one  of  these  factors  is  con- 
sidered as  having  any  importance,  the  question  is  not  alto- 
gether a  simple  one,  for  there  still  remains  the  difficulty 
arising  from  the  interpretation  we  may  give  to  the  chosen 
factor  as  the  only  one  for  consideration.  It  is  such  facts  as 
these  that  account  for  the  general  disharmony  in  theories  of 
taxation. 

An  illustration  of  the  difficulties  referred  to  is  found  when 
347]  II 


12  JUSTICE  IN  TAXATION  [348 

the  political  factor  is  made  the  only  one  or  the  fundamental 
one.  For  if,  on  the  one  hand,  we  regard  the  individual  as 
the  only  important  factor,  and  the  state  as  merely  an  acci- 
dental but  necessary  evil,  the  tendency  v^^ill  be  to  an  extreme 
of  individualism;  if,  on  the  other  hand,  the  individual  be  re- 
garded as  a  mere  part  of  an  organic  whole,  a  cell  of  a  living 
organism,  we  are  in  danger  of  the  opposite  extreme  of 
socialism.  The  one  extreme  tends  to  the  contract  theory  of 
Hobbs,  Locke  and  Rousseau  with  its  individual  independence 
and  its  protective  theory  of  taxation ;  the  other  to  a  personi- 
fied social  organism  which  directs  the  economic  activities  of 
its  units  and  utilizes  taxation  to  produce  artificial  equalities 
of  wealth.  Both  of  these  extremes  are  false,  although  they 
involve  the  important  truth  that  principles  of  taxation  are 
intimately  associated  with  a  political  philosophy. 

Not  less  are  the  difificulties,  nor  more  satisfactory  the  re- 
sults, if  the  question  be  approached  from  a  purely  economic 
point  of  view.  Different  theories  will  be  maintained  and 
different  conclusions  reached  according  as  production,  dis- 
tribution, or  consumption  is  made  the  basis  of  the  economic 
theory.  Moreover,  different  conclusions  will  result  from 
different  assumptions  respecting  economic  principles,  or 
from  the  importance  attached  to  specific  economic  laws. 
If,  for  example,  production  under  a  laissez  faire  regime  be 
regarded  as  the  chief  end  of  human  activity,  it  will  be  con- 
cluded that  taxation  should  interfere  as  little  as  possible  with 
capital  and  its  accumulation,  while  the  relative  productive 
powers  of  individuals  should  be  the  same  after  as  before  the 
payment  of  a  tax.  Or  if  there  be  implicit  confidence  in  the 
doctrine  of  free  competition  there  will  be  little  concern  about 
the  tax  system,  the  shifting  and  incidence  of  the  tax  through 
the  action  of  competitive  forces  being  relied  upon  to  effect 
the  ends  of  justice.  Similarly  we  have  only  to  exaggerate 
other  economic  elements  to  get  other  results. 


349]  INTRODUCTORY  13 

So,  too,  the  ethical  factor  may  lead  to  equally  divergent 
results  according  as  Hedonistic  or  utilitarian  principles,  or 
the  realization  of  the  idea  of  man,  is  made  the  dominant 
feature  of  our  ethical  system.  The  difficulty  is  here  further 
exaggerated  by  the  fact  that  there  is  frequently  a  difference 
between  theoretical  and  practical  ethics.  Harmony  between 
these,  whatever  our  ethical  principles,  is  by  no  means  easy 
to  accomplish.  Yet  a  substantial  harmony  must  be  estab- 
lished, or,  on  the  one  hand,  we  shall  have  only  utopianism 
founded  upon  abstractions,  and,  on  the  other  hand,  expe- 
diency founded  upon  concrete  facts  without  reference  to 
ideas  of  justice. 

But  a  more  fundamental  difficulty  than  that  which  arises 
within  the  separate  factors  themselves  is  the  determination  of 
their  relative  importance.  Each  one  must  receive  due  con- 
sideration ;  the  political,  because  the  relation  of  the  state  to  ' 
the  individual  is  primarily  involved ;  the  economic,  because/ 
matters  of  taxation  are  essentially  of  an  economic  character; 
the  ethical,  because  the  subject  and  the  end  of  the  whole 
proceeding  is  man,  a  spiritual  and  therefore  an  essentially 
ethical  entity.  But  which  is  the  ruling  factor?  The  im- 
portance of  this  question,  together  with  the  full  recognition 
of  the  separate  factors,  is  so  great  that  we  shall  treat  this 
aspect  of  the  subject  somewhat  'at  length  before  taking  up 
the  main  question — that  of  justice  in  taxation.  Indeed,  this 
method  of  procedure  is  indispensable  since  the  principles  of 
justice  can  not  be  determined  before  the  basis  upon  which 
they  rest  is  established. 

It  may  be  premised  here,  however,  that  the  whole  subject; 
of  taxation  revolves  about  man  as  its  center — man  in  his 
relation  to  society,  to  his  family  and  to  himself;  to  the  ends, 
that  is,  of  his  own  existence.  It  has  not,  indeed,  to  do  with 
the  whole  of  man's  activities  and  relations,  but  only  with  a 
small  portion  of  them;   in  fact,  with  only  a  portion  of  those 


14  JUSTICE  IN  TAXATION  [350 

involved  in  his  political  existence — the  maintenance  and 
support  of  the  state,  or  what  may  be  called  the  satisfaction 
of  the  collective  needs  of  the  individual.  But  because  these 
needs  and  their  satisfaction  are  common  and  involve  human 
relations,  an  equitable  distribution  of  the  burden  is  de- 
manded. In  brief,  the  question  of  taxation  is  a  part  of  the 
larger  question  of  distributive  justice.  But  it  is  not  with 
ideal  men  or  ideal  conditions  with  which  we  have  to  do,  but 
/  with  actual  men  and  conditions.  Hence,  the  specific  forms 
which  the  principles  may  take  will  depend  upon  the  pre- 
vailing moral  and  intellectual,  the  political  and  economic 
development. 

But  while  the  ultimate  end  is  ethical,  the  means  thereto 
are  largely  economic.  Both  a  theoretical  and  a  practical 
determination  of  what  is  justice  in  taxation  presupposes  a 
knowledge  of  economic  laws  and  of  their  influence  upon 
the  efifects  of  any  system  of  taxes. ^  It  could  not  be  other- 
wise, since  all  the  phenomena  concerned  are  economic. 
The  end  alone  is  ethical.  But  the  ethical  is  not  so  far  con- 
ditioned by  the  economic  that  it  is  only  a  consequence  of 
economic  laws.  There  are,  however,  certain  fundamental 
principles  in  taxation  (and  it  is  these  with  which  we  shall 
have  specially  to  do)  that  are  not  directly  concerned  with 
economic  laws.  They  presuppose,  indeed,  certain  economic 
conditions  and  certain  economic  forces,  but  their  real  justi- 
fication is  to  be  found  in  a  political  philosophy  and  in  the 
ethical  end  of  man.  It  is  more  directly  with  the  practical 
side  of  justice  that  economic  forces  have  their  importance ; 
although  it  is  true  that  the  theoretical  principles  of  justice 
depend  upon  economic  facts  for  their  interpretation. 

Notwithstanding  this  close  relation  of  the  economic  and 
the  ethical,  they  are  entirely  distinct,  being  related  as  means 
to  an  end,  or  as  proximate  and  ultimate  ends.     This  fact  is 

^  Cf.  Bastable,  Public  Finance,  p.  9. 


351]  INTRODUCTORY  1 5 

universally  recognized  in  every  financial  doctrine ;   for,  con- 
sciously  or  unconsciously,  the   ultimate   sanction   of  every 
theory  is  its  conformity  to  what  are  assumed  to  be  the  ends 
of  justice.     Even   those  who,  like  Sax,  deny  that  ethics  has 
any  place  in  finance,  are  forced  to  this  standard,  as  we  shall 
have   occasion  to   see   later.      With   all,   the   attainment  of  ? 
justice   in  the  distribution  of  the  tax  burden,  is  the  ruling  ^ 
idea.     Thus,  in  fact,  as  well  as  from  the  nature  of  the  subject 
itself,  the  ethical  element  is  made  the  predominating  element 
in  determining  the  principles  of  taxation.     But  unanimity  of 
thought  respecting  the  end  does  not  guarantee  unanimity  of 
doctrine.     Such   agreement  of  doctrine   depends  upon  the 
conceptions  of  ethical  ideals,  and  in  these  the  differences 
are  as  great  as  those  already  noted. 

Finally,  the  difficulties  of  the  problem  of  taxation  and  of 
the  attainment  of  a  common  agreement  of  doctrine  do  not 
consist  alone  in  differences  of  fundamental  presuppositions 
or  of  ideals.  Not  the  least  of  the  difficulties  is  a  logical  con- 
sistency in  the  development  of  a  theory  from  its  presupposi- 
tions. Too  frequently  prejudice,  sentiment  or  expediency  3 
usurp  the  place  of  logical  thinking,  which  not  unfrequently 
results  in  conclusions  in  no  way  related  to  the  premises 
assumed,  even  if  they  are  not  in  direct  opposition  to  them. 

Without  a  further  enumeration  it  must  be  evident  that  the 
problem  that  we  have  assumed  to  discuss  is  full  of  perplex- 
ing difficulties.  That  we  shall  be  able  wholly  to  avoid  them 
cannot  be  presumed,  for  many  of  them  are  inseparable  from 
the  subject  itself.  We  must  necessarily  start  with  assump- 
tions, and  the  merits  of  our  treatment  must  be  measured  by 
the  rationality  of  these  assumptions  and  the  logical  con- 
sistency with  which  the  idea  contained  in  them  is  developed. 
A  philosophical  or  scientific  treatment  must  further  be 
devoid  of  any  personal  bias.  While  it  shall  be  my  aim 
to  attain  this  standard   there  will  undoubtedly  be  some  who 


l6  JUSTICE  IN  TAXATION  [352 

will  consider  my  point  of  view,  if  not  my  reasoning,  vitiated 
by  an  undue  ethical  emphasis.  But  apart  from  the  fact  that 
the  real  subject  of  my  study  is  an  ethical  one,  I  believe  that 
in  emphasizing  the  ethical  element  of  the  problem  I  am  only 
recognizing  what  is  implied,  if  not  expressed,  in  other 
theories.  While  we  start  out  with  the  idea  of  ascertain- 
ing the  principles  of  justice  in  taxation  we  endeavor  to  start 
without  any  presuppositions  as  to  what  those  principles  are. 
Our  presuppositions  are  in  the  assumption  of  fundamental 
principles,  not  in  the  conclusions  ;  but  without  such  assump- 
tion no  rational  treatment  of  the  subject  is  possible. 

What,  then,  is  the  assumption  with  which  we  start  out? 
It  is  the  conception  of  man  as  a  personality,  and  as  such  as 
an  end  in  himself  whose  fullest  realization  is  the  purpose 
and  end  of  his  existence ;  and  that  this  realization  takes 
place  very  largely  in  and  through  institutions,  one  of  the 
most  important  of  these  being  the  political  institution — the 
state.  The  assumption,  however,  is  not  a  mere  assumption. 
It  has  rational  justification ;  but  the  demonstration  of  this 
belongs  to  the  field  of  metaphysics '  and  for  our  purpose 
will  be  presumed.  Of  special  and  more  immediate  impor- 
tance to  our  thesis  is  the  relation  of  the  state  to  the  individ- 
ual in  this  process  of  realization.  Hence,  a  conception  of 
the  nature  of  the  state  and  its  relation  to  the  individual  will 
constitute  the  foundation  of  our  thesis  and  form  the  basis  of 
our  argument.  What  the  nature  of  the  state  is  belongs  to 
political  philosophy  to  determine ;  but  since  political 
philosophy  afTords  so  many  different  conceptions  of  the 
state,  and  since  our  own  argument  must  depend  upon  our 
own  conception,  it  will  be  necessary  to  lay  our  own  founda- 
tions by  first  discussing  the  origin  and  nature  of  the  state 
before  discussing  the  principles  upon  which  the  state  should 
be  maintained — or  the  principles  of  taxation.     This  we  shall 

^  See  T.  H.  Green's  Prolegomena  to  Ethics. 


3531  INTRODUCTORY  '  17 

attempt  to  do  in  the  following  chapter  so  far  as  is  necessary 
to  make  clear  our  own  point  of  view.  We  shall  then  discuss 
the  nature  of  taxation  and  its  relation  to  economics  and 
ethics,  after  which  we  shall  take  up  the  subject  of  our  thesis 
proper. 

Before  beginning  our  discussion,  however,  it  may  be  well 
to  clear  up  an  ambiguity  suggested  in  the  wording  of  our 
subject.  "Justice  in  Taxation"  maybe  considered  either! 
from  a  practical  or  from  a  theoretical  point  of  view.  Under  I 
the  former  the  subject  would  involve  the  setting  forth  of  a 
detailed  system  of  taxes  that  would  realize  justice  to  the 
individual  taxpayer.  A  theoretical  treatment,  on  the  other 
hand,  involves  a  discussion  of  principles  rather  than  of  kinds 
or  systems  of  taxes.  It  is  the  latter  view  that  forms  the 
chief  subject  of  our  inquiry,  although  from  neither  point  of 
view  can  a  discussion  of  justice  in  taxation  wholly  ignore 
the  efTects  of  taxation ;  as,  for  example,  the  phenomena  of 
shifting  and  incidence  are  closely  related  to  the  problem  of 
rates  and  exemptions.  Principles,  however,  must  precede 
definite  systems  just  as  a  fundamental  assumption  must  pre- 
cede the  determination  of  principles,  for  without  a  norm  of 
judgment  no  definite  conclusions  are  possible. 

The  necessity  of  this  norm  must  be  our  answer  to  the 
"practical  man"  who  distrusts  all  theorizing  not  based  upon 
empirical  facts  alone,  and  who  seeks  to  determine  justice  inj' 
taxation  by  purely  objective  standards.  Such  a  procedure 
is,  to  our  mind,  comparable  to  the  attempt  to  obtain  a 
knowledge  of  an  object  from  mere  sensations  without  refer- 
ence to  a  unifying  and  interpreting  agency  to  give  them 
meaning.  Like  sensations,  mere  facts  are  without  signifi- 
cance. The  so-called  facts  of  the  empiricist  must  be  given 
a  meaning  by  reference  to  fundamental  concepts.  The 
principles  once  established,  it  is  for  the  practical  statesman 
or  financier  to  put  them  into  operation.     If  the  principles 


1 8  JUSTICE  IN  TAXATION  [354 

are  not  practicable  they  must  be  considered  as  Utopian,  at 
least  under  existing  conditions.  The  ideal,  however,  has  its 
place  and  importance,  but  the  necessity  of  its  modification 
in  practice  according  to  circumstances  must  be  recognized. 
The  nearest  approximation  to  justice  is  always  the  ideal 
under  any  given  conditions. 


CHAPTER  II 

THE  ORIGIN  AND  NATURE  OF  THE  STATE 

A  STUDY  of  the  origin  and  nature  of  the  state  is  a  neces 
sary  preh'minary  to  a  study  of  the  nature  of  taxation  and  is 
indispensable  as  a  foundation  for  the  determination  of  the 
principles  on  which  taxation  should  be  based.  It  furnishes, 
moreover,  an  explanation  of  the  reason  why  these  principles 
should  be  based  upon  ideas  of  justice.  That  justice  should 
be  the  aim  in  all  taxation,  is  now  universally  admitted,  and 
appears,  indeed,  so  self-evident  that  proof  is  deemed  un- 
necessary; but  the  proof  is  always  implied,  and  is  to  be 
found  in  the  nature  of  the  state,  or  rather  in  the  nature  of 
the  individual  and  his  relation  to  the  state. 

I.  The  Individual  and  Society 

The  nature  of  the  state  is  determined  by  the  nature  of 
society  as  the  nature  of  society  is  determined  by  the  nature 
of  the  individual.  But  the  individual  and  society  are  so- 
intimately  related  that  they  mutually  condition  each  other, 
and  hence  our  study  must  begin  with  a  study  of  the  indi- 
vidual and  society. 

Beginning,  then,  with  man,  the  individual,  it  is  possible  to 
conceive  of  him  in  three  dififerent  aspects :  As  related  to 
himself,  that  is,  as  a  distinct  personality ;  as  related  to 
society,  or  as  a  complex  personality;  and  as  related  to  the 
Infinite,  or  as  a  permanent  personality.  These  three  aspects 
are  expressive  of  the  ethical,  social  and  religious  nature  of 
man,  and  without  their  co-ordination  we  have  only  the  im- 
perfect and  undeveloped  man.  Our  concern,  however,  is 
355]  19 


20  JUSTICE  IN  TAXATION  [356 

with  only  the  first  two  of  these  aspects — man  the  individual 
and  man  in  society.  In  respect  to  the  former  we  assume, 
and  without  attempting  a  metaphysical  proof,  that  man  is  a 
human  spirit  and,  as  such,  a  personality,  and  therefore  exists 
as  an  end  in  himself;  that  it  is  the  purpose  of  his  life  to 
realize  that  end — to  develop  his  highest  personality,  to  per- 
fect himself.  Otherwise  man  would  exist  without  any 
rational  purpose.  It  is  not  the  nature  of  the  human  spirit  to 
be  content  with  mere  existence,  except,  perhaps,  in  its  lowest 
form,  where  the  animal  predominates  over  the  human.  It  is 
rather  its  nature  to  develop,  to  unfold  itself,  to  manifest  its 
possibilities,  and  in  doing  so  it  reveals  and  perfects  its  own 
personality. 

But  the  development  of  individual  personality  can  not  take 
place  by  itself.  It  is  possible  only  in  and  through  a  society 
of  similar  personalities,  a  society  oi  persons.  As  a  person  in 
a  society  of  persons  the  individual,  in  being  conscious  of  his 
own  end.  as  an  end  in  itself,  recognizes  that  every  other  in- 
dividual is  likewise  an  end  in  himself,  and  therefore  an  end 
to  be  realized.  In  this  reciprocal  recognition  of  similar 
natures,  effort  towards  the  realization  of  others  becomes  a 
part  of  the  realization  of  self.  Thus,  though  an  end  in  him- 
self, the  individual  does  not  exist  solely  for  himself,  but  is 
at  once  his  own  end  and  a  means  to  the  ends  of  others.  His 
development  is  conditioned  by  their  development,  as  their 
development,  in  turn,  is  conditioned  by  his.  The  joint  effort 
towards  the  realization  of  individual  personality  centers  in 
the  social  nature  of  man  and  necessarily  involves  social  re- 
lations. Only  through  the  development  of  the  social  nature 
is  the  development  of  the  individual  nature  made  possible, 
as  only  by  the  co-ordination  of  the  individual  and  social  side 
of  human  nature  can  true  personality  exist. 

The  development  of  the  social,  and  therefore  also  of  the 
individual,  nature  of  man  takes  place  in  manifold  ways,  but 


357]  ORIGIN  AND  NATURE  OF  THE  STATE  21 

more  and  more,  with  the  progress  of  his  development, 
through  social  relations  that  manifest  themselves  in  social 
institutions,  in  whose  complex  phenomena  we  have  what  is 
called  "  society."  To  borrow  Hegelian  terminology,  the 
human  spirit  in  realizing  itself  objectifies  itself  in  social  insti- 
tutions— in  society.  Such  a  society  being  a  manifestation 
of,  and  so  constituted  by,  persons  is  something  more  than  a 
mere  aggregate  of  individuals,  a  mere  numerical  quanitcm. 
It  is  the  result  of  social  forces,  and  aggregation  is  not  social- 
ization. The  bond  that  transforms  human  aggregates  into 
living  societies  is  psychical.  But  at  the  same  time  that  it  is 
a  uniting,  it  is  also  a  differentiating  force;  thus,  while  giving 
unity  to  the  social  elements  and  to  the  social  whole,  it  per- 
mits expression  of  the  manifold  human  interests  in  social 
efTort.  It  is,  furthermore,  purposive  in  character,  uniting 
common  interests  to  common  ends,  and  so  re-enforcing  the 
recognition  by  self-conscious  spirits  of  persons  as  means  to 
the  ends  of  others,  as  ends  to  themselves.  To  the  extent 
that  this  common  interest  and  recognition  do  not  exist  the 
self-seeking  spirit  of  man  tends  to  the  disintegration  of  so- 
ciety;  or  to  the  assumption  by  a  part  of  society  that  certain 
classes  of  individuals  are  only  means  to  the  ends  of  others, 
a  practical  denial  of  their  existence  as  persons,  as  ends  in 
themselves.  The  existence  of  such  a  negative  force  in  so- 
ciety has  far-reaching  consequences,  not  only  in  matters  of 
taxation  but  in  the  whole  economic  and  social  life;  for  to 
the  failure  to  recognize  individual  personality  as  an  end  in 
itself  are  very  largely  due  the  antagonisms  of  social  classes. 
Only  in  the  complete  recognition  of  the  ethical  nature  and 
end  of  the  human  person  can  society  fulfill  its  highest  pur- 
pose, as  expressing  the  objective  realization  of  the  individual 
— of  personality;  and  the  more  this  becomes  a  reality  in 
life  the  more  will  justice  between  man  and  man  be  realized. 
And  the  more  that  society  is  recognized  to  be  a  society  of 
persons  the  more  will  these  ends  be  attained. 


22  JUSTICE  IN  TAXATION  [358 

But  if  it  is  true  that  society  is  constituted  of  persons,  and 
that  without  persons  there  is  no  society,  it  is  not  less  true  that 
without  society  there  are  no  persons.'  Persons  and  society 
are,  in  fact,  correlative  to  each  other.  Each  presupposes 
the  other.  In  society  personality  and  individuality  unfold 
themselves;  in  society  the  human  spirit  seeks  its  realization. 
Without  society  the  person  has  only  potential  capacity, 
while  it  is  only  in  society,  "  only  in  the  intercourse  of  men, 
each  recognized  by  each  as  an  end,  not  merely  as  a  means, 
and  thus  as  having  reciprocal  claims,  that  the  capacity  is 
actualized  and  that  we  really  live  as  persons." '  If  the  evo- 
lution of  social  relations,  indeed,  is  but  the  gradual  tracing 
out  of  the  evolution  of  the  human  spirit,  these  relations,  as 
they  at  any  time  exist,  are  the  embodiment  of  all  past,  and 
condition  all  future,  social  development.  But  although  so- 
ciety and  the  individual  mutually  presuppose  each  other  the 
end  of  social  evolution  is  not  in  society,  as  such,  but  in  the 
realization  of  the  individual,  to  which  end  society  is  a  con- 
dition and  a  means.  And  in  the  character  of  society  as  a 
society  of  persons,  and  as  a  condition  of  their  development, 
we  have  indicated  the  ethical  character  of  all  social  institu- 
tions, and  the  necessity  of  ethical  considerations  in  all  social 
relations.  Related  as  subjective  to  objective  the  develop- 
ment of  one  implies  the  development  of  the  other.  And  as 
the  development  of  the  ethical  life  takes  on  the  form  of  a 
change  in  extent  rather  than  in  the  fundamental  ideas,^  em- 
bracing an  ever  larger  circle  of  persons  in  the  consciousness 
of  the  unity  of  purpose  and  ends,  so  in  social  evolution  there 
is  an  ever  increasing  multiplicity  in  the  numbers  and  variety 
of  social  institutions,  an  ever  growing  organization  of  com- 
mon interests  and  common  ends,  the  complexity  of  the 
social  relations  being  a  reflex  of  the  complex  nature  of  the 

*  Green,  op.  cit.,  p.  199. 

*Ibid.,  p.  192.  »  Cf.  Green,  p.  269. 


359]  ORIGIN  AND  NATURE  OF  THE  STATE  23 

individual,  a  means  of  his  giving  expression  of  himself — of 
his  being  a  person. 

The  complexity  of  social  relations  is  not  a  miscellaneous 
complexity.  Every  human  interest,  when  it  becomes  suffi- 
ciently important  and  sufficiently  general  according  to  cir- 
cumstances, is  focussed  in  an  organized  body  of  persons  with 
the  purpose  of  giving  realization  to  the  common  interest. 
Thus,  out  of  social  relations  are  formed  social  groups,  whose 
totality  constitutes  society.  These  groups  tend  to  embrace 
every  human  interest  of  social  importance — intellectual, 
moral,  religious.  They  divide  and  subdivide,  ever  increasing 
in  numbers  and  variety  with  intellectual,  moral  and  religious 
progress.  In  content  these  groups  tend  to  become  more 
specialized,  in  extent  more  generalized;  a  condition  due  to 
scientific  progress,  as  in  means  of  communication,  on  the 
one  hand ;  and  to  a  broader  human  fellowship,  an  enlarging 
consciousness  of  the  unity  of  interests  and  ends,  on  the  other 
hand.  But  the  consciousness  of  a  community  of  interests 
and  ends  that  gives  rise  to  social  groupings  is  not  a  reflective 
consciousness  of  ultimate  ends,  except,  perhaps,  in  certain 
religious  groups.  The  determining  consciousness  is  that  of 
immediate  interests  and  ends.  Consciousness  of  ultimate 
ends  has  little  direct  influence  upon  social  groupings.  The 
ultimate  end  is  revealed  only  by  a  reflective  analysis  of  the 
philosophy  of  social  life  with  reference  to  the  life  of  the  in- 
dividual. Yet  it  is  only  in  and  through  the  almost  countless 
number  of  these  groups,  ever  increasing  in  numbers  and  var- 
iety, that  the  human  spirit  finds  its  fullest  realization.  And 
the  "  unity  in  complexity  "  of  these  groups  is  typical  of  the 
highest  form  of  social  evolution.' 

The  tendency  towards  social  organization,  however,  is  not 
without  its  opposing  influences.  The  presence  of  self-seek- 
ing spirits   as   the   dominant  factor  in   human   life  is  a  dis- 

*  Cf.  Spencer,  Principles  of  Sociology,  Ft.  v,  chs.  2-4. 


24  JUSTICE  IN  TAXATION  [360 

integrating  social  force  and  produces  a  retardation  if  not  a 
negation  of  social  organization.  Social  development  is  con- 
ditioned not  only  by  the  presence  of  positive  social  forces 
and  favorable  conditions,  but  by  the  absence  of  negative 
forces  and  conditions.  Progressive  realization  of  the  human 
spirit  is  possible  only  where  the  conditions  are  favorable  to 
its  voluntary  and  spontaneous  activity,  both  with  respect  to 
individual  undertakings  and  with  respect  to  associated  effort 
such  as  is  manifested  in  the  social  groups  seeking  a  common 
purpose.  That  these  positive  and  negative  conditions 
should  be  maintained  becomes,  then,  a  matter  of  the  first 
importance  and  of  general  interest.  To  this  end  a  coercive 
power  is  a  necessary  requisite,  and  hence,  in  its  main- 
tenance and  support  there  is  a  universal  interest.  Such  a 
power  is  realized  in  the  political  organization  of  society,  the 
state — the  all-comprehensive  social  group  representing  the 
universal  common  interest.  In  this  group  is  centralized 
both  the  objective  and  the  subjective  complexity  of  society, 
in  it  social  life  reaches  its  highest  culmination. 

II.  Origin  of  the  State 

With  the  actual  historical  origin  or  with  the  evolution  of 
the  stale  we  have  no  concern.  Being  in  search  of  princi- 
ples our  point  of  view  is  wholly  that  of  a  philosophy  of  the 
state,  and  is  therefore  an  inquiry  into  its  underlying  princi- 
ple and  cause,  of  which  the  historical  state  is  a  manifesta- 
tion, whatever  may  have  been  the  course  of  its  development. 
From  this  point  of  view  the  state's  origin  may  be  considered 
under  two  aspects,  its  objective  necessity  and  its  subjective 
necessity. 

By  objective  necessity  I  understand  the  necessity,  pointed 
out  above,  of  a  coercive  power  to  give  unity  to  society  and 
to  make  possible  the  conditions  of  social,  and  thereby  in- 
dividual,   development.     For    without   such    a    dominating 


36  I ]  ORIGIN  AND  NATURE  OF  THE  STATE  25 

social  group  society  would  at  best  be  but  an  unorganized 
mass  of  social  groups  in  perpetual  and  unrestrained  conflict 
with  anti-social  forces,  thus  destroying  the  effectiveness  of 
social  organization  and  social  effort  in  the  work  of  the 
realization  of  man.  The  necessity,  indeed,  of  this  restrain- 
ing and  controlling  power  has  been  recognized,  however  un- 
consciously, from  the  very  dawn  of  society,  though  its 
earliest  manifestation  was  in  other  social  groups,  such  as  the 
family  and  religious  groups.  In  the  course  of  time  the  ever 
increasing  manifoldness  of  interests,  by  a  process  of  social 
evolution,  gave  rise  to  a  differentiation  of  the  groups,  a  dis- 
tinct political  group  ultimately  emerging  with  the  specific 
function  of  maintaining  the  order  and  conditions  necessary 
to  the  ends  of  individual  and  social  life.  Assuming  the 
realization  of  the  individual  as  the  unrestrainable  and 
impelling  force,  the  necessity  of  the  objective  conditions 
may  be  considered  as  one  of  the  unconscious  forces  that 
brought  the  state  into  being.  In  brief,  its  very  indispensa- 
bleness  is  the  cause  of  its  being.  With  human  nature  as  it 
is  the  state  can  not  be  conceived  not  to  be. 

But  the  objective  necessity  is  not  the  only  cause  of  the 
state.  Back  of  that  and  co-operating  with  it  is  a  subjective 
necessity  that  springs  from  the  nature  of  the  individual.  On 
the  one  hand  it  is  the  necessity  of  self-realization  in  the 
most  effective  manner;  on  the  other  hand,  it  springs  from 
the  social  nature  of  man  '  that  impels  him  to  associative 
effort  for  individual  ends  of  a  common  interest.  In  this 
respect  the  state  does  not  differ  from  other  social  groups. 
These  differ  among  themselves  chiefly  in  content  and  im- 
mediate end,  but  also  in  the  form  of  organization  and  gov- 
ernment. Ncr  is  the  social  nature  that  binds  men  together 
in  societies  a  mere  instinct  such  as  prevails  in  animal  soci- 
eties.    It  is  rather  a  partly  conscious  and  partly  unconscious 

*  Aristotle,  Folilics,  i,  2. 


26  JUSTICE  IN  TAXATION  [362 

recognition  of  common  ends  of  immediate  interest;  and  with 
the  highest  development,  also,  of  ultimate  ends.  Philosoph- 
ically the  social  nature  of  man  as  distinct  from  the  social 
nature  of  the  animal,  has  its  reason,  if  not  its  spring,  in  the 
conscious  or  unconscious  recognition  of  man  as  an  end  in 
himself  and  as  a  means  to  the  end  of  others. 

III.  The  Nature  of  the  State 
The  real  nature  of  the  state  is  revealed  on  the  one  side  in 
its  origin  and  on  the  other  side  in  its  end.  Its  origin,  nature 
and  end  are,  in  fact,  but  different  ways  of  viewing  the  funda- 
mental conception  of  the  state  as  an  indispensable  instrument 
in  human  development.  In  determining  its  origin  we  have, 
therefore,  determined  in  general  its  nature  and  end.  But  a 
more  specific  determination  of  its  nature  is  necessary,  and 
this  may  best  be  done  by  a  more  specific  determination  of 
its  end,  for,  as  Aristotle  long  ago  pointed  out,  the  nature  of 
a  thing  is  determined  by  its  end.' 

What,  then,  is  the  end  of  the  state?  We  must  first  of  all 
distinguish  between  the  end  of  the  state  and  the  functions  of 
government.  A  government  is  only  the  agent  of  a  state,  an 
organization  within  the  state  for  effecting  its  will — its  pur- 
pose. A  state  is  a  body  of  people  organized  into  a  body 
politic  to  effect  the  purpose  or  ends  of  individuals.  The 
functions  of  government,  then,  have  reference  to  the  organ- 
ized will  of  the  people ;  the  end  of  the  state  to  the  end  of 
the  individual.  We  may,  however,  consider  the  end  of  the 
state  as  of  a  two-fold  character:  proximate  and  ultimate. 
Proximate  with  reference  to  the  establishment  of  preliminary 
conditions;  ultimate  with  reference  to  the  final  end.  Ac- 
cordingly Professor  Burgess  calls  the  proximate  end  the 
establishment  of  government  and  liberty;''  but  if  we   may 

^  Aristotle,  Politics  i,  2,  8. 

^  Burgess,  Political  Science  and  Constitutional  Law,  Vol.  i,  p.  86. 


363]  ORIGIN  AND  NATURE  OF  THE  STATE  27 

consider  government  as  inseparable  from  the  state,  though 
distinct  from  it,  the  proximate  end  might  be  more  justly 
considered  as  the  guaranteeing  of  rights  and  justice  between 
man  and  man,'  the  direct  maintenance  of  them  being  a 
function  of  government.  What  the  specific  functions  may- 
be is  a  question  that  is  determined  at  any  time  by  the 
existing  state  of  culture  and  civilization,  by  the  prevailing 
conception  of  the  relation  of  the  state  to  the  individual.  But 
into  this  question  we  need  not  enter  here. 

The  ultimate  end  of  the  state  is  the  ultimate  end  of  its 
units — of  the  individuals  of  which  the  state  is  composed. 
The  state  by  itself  can  have  no  end  that  is  ultimate,  since 
ultimate  ends  pertain  only  to  entities  that  are  ends  in  them- 
selves. The  end  is  ultimate  to  the  state  only  with  reference 
to  its  supreme  purpose — to  the  ultimate  purpose  of  its  exist- 
ence— not  with  reference  io  itself.  This  purpose,  and  there- 
fore the  ultimate  end  of  the  state,  is  the  completest  realiza- 
tion of  the  individual — his  capacities,  his  persotiality,  the 
highest  human  development,  the  perfection  of  humanity." 
Considered  with  reference  to  itself  the  ultimate  end  of  the 
state  is  the  maintenance  of  the  conditions  that  are  essential 
to  the  self-realization  of  the  individual.  The  state  is  a 
means ;   man  alone  is  the  end. 

In  brief,  a  state  represents  the  organized  efTort  of  a  people 
to  realize  the  fullest  development  of  human  personality;  or 
it  is  the  supreme  conditioning  instrument  of  that  realization. 
And  to  be  such  a  condition  and  instrument  constitutes  the 
real  essence  of  the  nature  of  the  state.  But  all  other  human 
institutions  are  conditions  as  well  as  means  to  the  develop- 
ment of  the  individual ;  and  since  their  existence  and  utility 
are  conditioned  by  the  existence  of  the  state,  we  may  char- 
acterize the   state  as   the   condition   of  conditions  that  are 

•  Cf.  Lilly,  First  Principles  in  Politics,  p.  30. 

'  Cf.  Burgess,  op.  cit.,  p.  85,  and  Lilly,  op.  cit.,  p.  51. 


28  JUSTICE  IN  TAXATION  [364 

necessary  for  the  realization  of  man.  This  supreme  im- 
portance of  the  state  to  the  individual  makes  it  of  universal 
interest,  while  the  ethical  character  of  its  end,  a  consequence 
of  the  ethical  character  of  its  units,  makes  it  an  ethical 
institution.  These  characteristics  of  the  state — the  universal 
interest  and  the  ethical  character — may  be  called  derivative 
characteristics  of  its  nature.  There  are  also  other  character- 
istics of  the  state  that  are  essentially  connected  with  the 
nature  of  the  relation  of  the  state  to  the  individual.  A 
definite  conception  of  the  most  important  of  these  is  neces- 
sary to  a  clear  understanding  of  the  nature  and  principles  of 
taxation.  They  are :  The  character  of  the  relation  of  the 
individual  to  the  state;  the  character  of  the  state  as  an 
organization;  and  the  character  of  the  state  as  a  supreme 
controlling  power.  We  shall  discuss  these  characteristics  of 
the  state  briefly  under  the  following  heads :  The  voluntary 
and  involuntary  character  of  political  organization;  the 
organic  theory  of  the  state ;   the  nature  of  sovereignty. 

IV.  Characteristics  of  the  State 

I.  The  Voluntary  and  Involuntary  Character  of  Political 
Organization.  We  have  thus  far  seen  that  the  state  is  the 
supreme  and  most  important  of  social  institutions ;  that  it 
originates  on  the  one  hand  in  the  social  side  of  human 
nature,  and  on  the  other  hand  in  the  effort  of  man  to  realize 
the  possibilities  of  his  nature ;  that  its  origin  dates  from  the 
very  dawn  of  social  life;  that  in  its  development  in  form  and 
organization  it  has  gradually  become  differentiated  from 
other  social  groups,  assuming  the  special  function  of  estab- 
lishing the  conditions  that  make  their  development,  as  well 
as  all  social  evolution,  possible,  its  ultimate  purpose  being 
the  realization  of  human  personality ;  that,  finally,  it  is  an 
ethical  institution  in  which  there  is  a  universal  interest.  Its 
dominant  feature  is  its  conditioning  character,  but  while  this 


365"'  ORIGIN  AND  NATURE  OF  THE  STATE  29 

feature  is  prominent  in  every  field  of  social  life  it  has  per- 
haps its  greatest  significance  in  the  economic  life ;  not  only 
because  economic  or  industrial  conditions  are  the  best  ob- 
jective indication  of  progressive  enlightenment  and  civiliza- 
tion, but  because  the  economic  life  is  in  a  sense  the  founda- 
tion of  both  individual  and  social  life,  and  so  also  of  the  state 
itself.  In  such  a  social  body,  whose  existence  is  so  impor- 
tant to  the  individual  that  without  it  he  could  not  exist  as  a 
person,  what  is  the  character  of  the  membership?  In  other 
social  groups  membership  is  limited,  and  is  determined  by 
choice  based  upon  an  idea  of  the  Good  for  the  self  but  with 
limitations  imposed  by  each  social  group  for  itself.  Choice 
and  permission  are  both  essential ;  there  is  no  compulsion 
either  from  within  or  from  without,  but  only  a  subjective 
necessity.  Is  membership  in  the  state  of  the  same  char- 
acter? Membership  in  this  or  that  particular  state  is  deter- 
mined by  various  influences,  as  language,  custom,  tradition, 
nationaUty;  but  with  intellectual  and  economic  enlighten- 
ment and  growth  in  personal  freedom,  membership  becomes 
more  and  more  determined  from  choice,  from  an  idea  of  a 
personal  Good.  But  membership  in  a  state  is  universal, 
there  being  no  stateless  persons  in  civilized  society.  It  is 
also  universally  necessary,  and  this  necessity  is  not  only 
subjective  but  is  also  objective:  subjective,  because  as  we 
have  seen,  it  is  the  inevitable  expression  of  certain  qualities 
in  human  nature;  objective,  because  in  civilized  society 
there  is  no  escape  from  membership  in  a  state  and  subjec- 
tion to  its  laws. 

But  is  this  membership  voluntary  and  free,  or  involuntary 
and  compulsory?  Our  answer  must  be  that  from  different 
points  of  view  it  is  both  voluntary  and  compulsory.  From 
the  point  of  view  of  political  science  it  is  compulsory,  but 
from  the  point  of  view  of  a  philosophy  of  the  state  it  is  vol- 
untary.    Objectively  considered,   that  is  from  the  point  of 


30  JUSTICE  IN  TAXATION  [366 

view  of  empirical  political  science,  the  state  is  undoubtedly 
founded  upon  force ;  and  membership  in  it,  support  for  its 
maintenance  and  defense,  is  compulsory.  Without  the  ex- 
ercise of  force,  or  the  possibility  of  its  exercise,  no  state 
could  endure.  Without  it  there  would  be  only  individual 
and  factional  strife,  the  "  war  of  all  against  all,"  barbarism, 
undeveloped  humanity.  But  important  as  is  the  element  of 
force  in  a  state,  force  viewed  as  the  foundation  of  the  state 
expresses  but  a  half-truth.  Considered  from  the  point  of 
view  of  subjective  political  philosophy,  the  only  point  of 
view  that  reveals  the  true  relation  of  the  individual  to  the 
state,  the  foundation  of  the  state  is  will.''  Or,  if  force  is  the 
foundation  of  the  state,  will  is  the  foundation  of  force.  In 
fact,  the  force  which  the  state  typifies  is  but  the  embodiment 
of  the  wills  of  its  members,  the  objectified  will  of  persons. 
Hence  also  membership  in  the  state  is  both  compulsory  and 
voluntary.  The  state,  as  force,  exacts  support  and  obe- 
dience, but  the  state  as  the  embodiment  of  will  is  created 
and  maintained  by  the  voluntary  acts  of  free  agents — of 
persons. 

This  dual  character  of  the  state  and  of  membership  in  it,  a 
little  reflection  will  make  evident.  The  element  of  force  and 
compulsion  is  too  self-evident  and  too  admittedly  necessary 
to  need  special  justification ;  but  that  the  force  of  the  state 
can  not  be  permanently  effective,  except  as  it  is  the  ex- 
pression of  will,  reflection  must  make  equally  clear.  The 
fact,  indeed,  is  well  illustrated  in  the  practical  impossibility 
of  enforcing  unpopular  laws — of  laws  out  of  harmony  with 
the  general  public  sentiment.  The  fact  that  the  state  is  a 
people  organized  into  a  political  society,  originating  in  a 
common  interest  to  achieve  a  common  purpose  and  common 
end — based  upon  an  idea  of  a  Common  Good  ^ — is  likewise 
the  clearest  evidence  of  the  implication  of  will  as  its  source, 

*See  Green,  Political  Obligations,  pp.  12X-141.  ^ Ibid.,  p.  126. 


367]  ORIGIN  AND  NATURE  OF  THE  STATE  31 

and  that  there  is  not  fundamentally  any  forced  subjection  to 
any  external  power.  The  purpose  of  realizing  a  common 
good  can  have  no  meaning  except  it  be  grounded  upon  con- 
sent; but  consent  is  choice,  choice  is  an  act  of  will,'  and  will 
is  based  upon  an  idea  of  a  Good.  And,  it  may  be  added,  in 
the  willing  of  a  common  good,  the  pursuit  of  a  common 
end,  which  implies  a  conscious  presentation  of  the  end  to  the 
subjects  willing,  is  the  final  proof  that  the  state  is  an  ethical 
and  not  merely  a  natural  institution." 

The  real  fact  is  that  membership  in  a  state — or  the  sup- 
port and  obedience  which  it  implies — is  a  result  of  compul- 
sion only  in  the  case  of  this  or  that  individual,  where  ignor- 
ance and  selfishness  has  set  up  a  personal  good  as  opposed  to 
the  common  good.  Without  such  compulsory  conformity 
to  the  idea  of  a  common  good,  dissolution  would  set  in 
and  the  state  soon  cease  to  be  a  state ;  but  this  compulsion 
becomes  less  and  less  a  factor  in  the  life  of  a  state,  while 
voluntary  participation  in  and  support  of  the  state,  becomes 
more  general,  the  more  enlightened  a  people  becomes — the 
more  it  rises  to  the  idea  of  a  common  humanity  possessed 
with  common  interests  and  like  ends.  Upon  the  state  as  a 
whole,  indeed,  there  can  be  no  compulsion,  since  the  state  is 
itself  a  body  of  people  organized  for  the  maintenance  of 
rights.  Compulsion  must  be  by  the  whole  upon  the  indi- 
viduals who  contravene  these  rights.  Compulsion  is  from 
without,  and  the  state  is  not  a  body  external  to  itself  that 
can  coerce  itself.  The  people  as  a  whole  and  individually 
will  the  enforcement  of  law  for  the  maintenance  of  rights. 
Even  the  violator  of  law  wills  the  enforcement  of  the  law 
upon  every  member  of  society,  and  therefore  upon  himself. 
He  merely  takes  his  chances  for  a  greater  personal,  temporary 
good  for  himself  by  evasion  of  it. 

'  Cf.  Aristotle,  Nicomachean  Ethics,  iii,  2,  I. 
*  Cf.  Green,  Political  Obligations,  p.  132. 


32  JUSTICE  IN  TAXATION  [368 

In  brief,  the  case  is  this :  By  virtue  of  a  recognition  of 
persons  as  ends  in  themselves  there  arises  the  idea  of  the 
rig-Afs  of  persons,  and  therefore  also  a  common  interest 
in  the  maintenance  of  these  rights  by  the  combined  force  of 
all.  To  this  end  the  state  is  organized — to  centralize  the 
force  of  the  whole  upon  the  individual.  For  the  realization 
of  rights,  therefore,  two  conditions  are  essential :  a  concep- 
tion of  persons  as  possessing  rights  because  of  their  char- 
acter as  persons,  and  the  collective  enforcement  of  these 
rights.  Or,  as  Green  says,  force  co-operates  "with  those 
ideas  without  which  rights  could  not  exist."  ' 

2,  The  Organic  Theory  of  the  State.  What,  now,  is  the 
character  of  the  poHtical  organization  in  which  the  citizen 
freely  participates  for  the  realization  of  himself?  Is  the  state 
a  mere  aggregate  of  individuals,  a  social  organism,  or  an  as- 
sociation of  individuals  psychically  united  by  a  common 
interest  in  common  ends?  An  answer  to  this  question  will 
throw  light  upon  the  nature  of  the  state  and  also  upon  cer- 
tain principles  of  taxation,  particularly  respecting  the  basis 
of  taxation  and  the  exemption  of  the  minimum  of  subsistence. 
Our  own  answer  has  practically  been  given  in  the  preceding 
discussion,  but  we  may  re-enforce  our  argument  by  a  brief 
consideration  of  the  opposing  theories. 

The  theory  that  the  state  is  a  mere  aggregate  of  individ- 
uals need  not  detain  us  long,  as  there  are  few,  outside  of  the 
anarchist  or  the  extreme  individualist,  who  would  maintain 
so  irrational  a  doctrine.  Clearly,  a  mere  aggregate  of  indi- 
viduals cannot  make  a  society,  or  a  social  group,  any  more 
than  a  mere  sum  of  sensations  can  issue  in  knowledge.  So- 
ciety, like  knowledge,  implies  unity  in  multiplicity,  but  s»ich 
unity  is  possible  only  if  there  is  a  common  principle  that 
pervades  the  multiplicity — the  individuals   or   sensations — 

*  Cf.  Green,  Political  Obligations,  p.  140. 


369]  ORIGIN  AND  NATURE  OF  THE  STATE  33 

and  binds  them  together  about  a  common  idea,  purpose  or 
end.     Without  this  uniting  principle  there  can  be  no  society. 

But  is  the  unity  that  makes  society  an  organic  unity?  Is 
society — the  state — an  organism?  Such  has  been  the  ac- 
cepted doctrine  of  widely  different  schools  of  thought,  as 
Spencer  on  the  one  side  and  German  philosophers  and  econ- 
omists on  the  other  side.  The  theory  of  the  social  organism 
is  to-day  one  of  the  most  widely  accepted  doctrines  respect- 
ing society  or  the  state.'  That  there  is  a  striking  analogy 
between  the  structure  of  the  state  and  an  animal  organism 
there  can  be  no  doubt;  and  that  this  analogy  is  helpful  to  a 
clearer  understanding  of  the  nature  of  the  state  must  also  be 
admitted.  But  it  is  a  poor  logic  that  argues  from  an  anal- 
ogy of  structure  to  an  identity  of  character  or  nature.  In- 
deed, the  analogy  even  with  qualification  is  quite  ?s  harmful 
as  helpful,  since  it  is  suggestive  of  an  entirely  erroneous  con- 
ception of  the  relation  of  the  individual  to  the  state,  and  log- 
ically carried  out  would  lead  to  strange  conclusions  in  prin- 
ciples of  taxation,  as  in  political  matters  generally.  Upon 
the  whole  I  believe  it  to  be  in  the  interest  of  scientific  truth, 
notwithstanding  certain  similarities,  to  abandon  the  analogy 
entirely,  not  only  because  of  its  misleading  tendencies  but 
because  in  its  most  important  features  the  analogy  is  entirely 
false.  Without  attempting  a  detailed  criticism  I  would  men- 
tion three  facts  any  one  of  which  is  sufficient  to  overthrow 
the  doctrine  that  the  state  is  a  social  organism.  These  are: 
I.  Dififerences  in  the  character  of  the  units;  2.  differences 
in  sentiency  of  organism  and  society.  3.  dififerences  in  the 
end  of  the  units  and  the  whole.' 

I.  The  units  of  an  organism  differ  from  those  of  a  society 

'  It  is  interesting  to  note  that  there  is  a  growing  tendency  among  American 
authors  lo  reject  the  organic  theory  of  society,  as  notably,  Giddings,  Willoughby 
and  Fairbanks. 

*See  Spencer,  Principles  of  Sociology,  Vol.  I,  pp.  478-9. 


34  JUSTICE  IN  TAXATION  [370 

or  state,  in  their  discreteness,  their  mobility,  their  conscious- 
ness. («)  The  units  of  an  organism  are  concrete,  material 
things  physically  united,  though  endowed  also  with  the  phy- 
sical principle  of  life.  The  units  that  compose  a  state  are 
materially  discrete,  though  being  essentially  psychical  in 
their  nature  are  psychically  united,  {b)  The  physically 
united  unit  of  the  organism  is  immobile  and  performs  a  spe- 
cific function  in  a  specific  portion  of  the  organism.  The 
psycho-physical  unit  of  the  state  being  discrete  has  great 
mobility,  and  performs  various  functions  in  various  portions 
of  the  body  politic.  (<r)  Not  only  is  the  social  unit  endowed 
with  mobility,  but  it  has  also  consciousness,  indeed,  self-con- 
sciousness. It  has,  thus,  the  capacity  of  the  self-direction 
of  its  movements  and  activities  in  the  pursuit  of  various  pur- 
poses that  it  sets  before  itself  as  desirable  to  attain.  Hence 
its  ability  to  attach  itself  to  this  or  that  society — "social 
organism  " — or  to  perform  functions  not  only  in  the  various 
groups — "organs" — of  the  same  society,  but  also  at  one  and 
the  same  time  in  dififerent  societies  or  states.  In  no  sense 
does  such  consciousness  and  such  self-direction  exist  in  the 
unit  or  cell  of  an  organism.  There  is,  in  brief,  all  the  differ- 
ence between  a  thing  and  a  person. 

2.  Again,  in  the  animal  organism  there  is  a  common  sen- 
sorium  for  the  whole  organism  which  is  the  center  of  its 
sentient  and  psychical  existence.  No  such  sensorium  exists 
for  the  state,  since  it  exists  only  in  corporeal  substance  and 
the  state  is  not  such  an  entity.  It  has  no  sentiency  or 
psychical  life  apart  from  that  manifested  in  its  unitary  parts, 
while  in  the  organism  there  is  no  sentiency  or  psychical  life 
apart  from  that  manifested  in  the  whole.  It  does  not  exist 
in  the  units  or  cells.  So  far  as  there  is  any  comparison,  in- 
deed, it  is  between  the  organism  as  a  whole  and  the  units 
that  make  up  a  state.  But  since  these  units  are  in  reality 
the  organism  with  which  the  comparison  would  be  made,  we 


37 1 ]  ORIGIN  AND  NATURE  OF  THE  STATE  35 

should  have  only  what  the  logicians  call  an  identical  prop- 
osition. 

3.  But  perhaps  the  most  decisive  difference  between  an 
organism  and  the  state  is  in  the  ends  of  the  units  and  of  the 
whole.  In  the  organism  the  cells — units — are  merely  con- 
tributory parts  in  the  life  of  the  whole  and  exist  only  for  the 
sake  of  the  whole.  They  have  no  end  of  their  own  and  no 
function  apart  from  the  specific  organism  to  which  they  be- 
long, and  apart  from  it  also  no  reality.  The  units  of  the 
"  social  organism,"  on  the  other  hand,  do  not  exist  for  the 
v^^hole,  but  the  whole  exists  for  them,  for  their  development. 
They  are  ends  in  themselves,  have  functions  of  their  own  to 
perform  as  well  as  those  for  the  whole,  and  have  a  reality  of 
their  own.  But  the  organism,  as  such,  has  its  end  in  its  own 
existence,  while  the  state  has  its  end  in  the  highest  existence 
of  its  members — its  constituent  parts.  In  the  state  the 
whole  has  its  existence  in  and  for  the  parts ;  in  the  organism 
the  parts  exist  in  and  for  the  whole. 

These  objections,  to  which  others  might  be  added,  are  a 
sufficient  refutation  of  the  widely-accepted  doctrine  of  a 
social  organism.  But  if  the  organic  theory  of  society  is 
false,  so  also  is  the  extreme  individualistic  conception  of 
society.  If  the  state  is  not  an  organism  for  which  the  indi- 
vidual exists,  it  is  nevertheless  true,  as  we  have  seen,  that  it 
is  only  in  the  state  that  the  individual  has  his  highest  and 
most  complete  existence.  The  only  true  theory  lies  between 
the  two  extremes,  and  sees  the  mutual  dependence  of  the 
state  and  the  individual,  never  forgetting,  however,  that  the 
ultimate  factor  of  permanent  importance  is  the  individual, 
for  whose  end  all  els-^  is  at  bottom  subordinate. 

Important  conclusions  follow.  For  if  the  view  that  we 
have  held  is  the  true  one,  it  follows  that  the  individual  must 
contribute  to  the  support  and  maintenance  of  the  state,  but 
that  in   doing  so  his  own  personality,  and  therefore  ethical 


36  JUSTICE  IN  TAXATION  1^372 

considerations,  should  ever  be  kept  in  the  foreground.  But 
on  the  theory  of  a  social  organism  contributions  to  the  state 
should  be  determined  rather  by  principles  of  expediency 
than  by  ethical  principles,  since  the  ends  of  the  individual 
would  be  of  no  concern,  as  they  would  have  existence  only 
for  the  "organism."  On  the  basis  of  an  extreme  individual- 
ism there  would  be  no  contributions  to  the  state,  or  if  so, 
only  voluntary  ones. 

3.  The  Nature  of  Sovereignty.  We  are  not  concerned 
with  all  of  the  characteristics  of  sovereignty,  but  only  with 
such  characteristics  as  have  any  importance  in  the  determina- 
tion of  principles  of  taxation.  We  shall,  therefore,  consider 
sovereignty  only  with  respect  to  its  dual  nature  and  the 
characteristics  of  each,  and  with  respect  to  the  rights  of  in 
dividuals. 

I.  By  common  consent  the  chief  attribute  of  sovereignty 
is  supreme,  coercive  power  over  the  lives  and  property  of 
individuals,  or  associations  of  individuals,  that  are  members 
of  a  state ;  a  feature  that  is  common  to  no  other  social 
group.  But  sovereignty  is  som.ething  more  than  supreme 
power — force ;  but  to  understand  its  twofold  character  it  is 
necessary  to  keep  in  mind  the  distinction  between  state  and 
government  so  clearly  and  forcibly  made  by  Professor  Bur- 
gess.' A  state  is  a  body  of  people  organized  as  a  body 
politic ;  a  government,  as  we  have  seen,  is  the  agent  of  the 
state,  the  instrument  for  efifecting  its  will.  It  is  in  the  gov- 
ernment that  is  manifested  the  direct  exercise  of  sovereignty, 
but  the  source  of  this  power  is  in  the  people  back  of  the 
government.  It  is  the  former  that  the  statesman  or  lawyer 
ordinarily  has  in  mind,  but  to  the  political  philosopher  the 
latter  is  of  chief  importance.  The  former — the  sovereignty 
of  government — we  may,  with  Professor  Ritchie,^  call  legal 

'  Burgess,  Political  Science  and  Constittiiional  Law,  Vol.  i,  p.  57. 
'Ritchie,  Principles  of  State  Interference,  Appendix,  note  B. 


Of 

373]  ORIGIN  AND  NATURE  OF  THE  STATE  37 

sovereignty;  the  latter — the  sovereignty  of  the  people — 
ultijnate  sovereignty.  More  definitely,  ultimate  sovereignty 
is  the  organized  will  of  a  people  respecting  life  and  prop- 
erty, liberty  and  justice,  or  the  conditions  of  human  de- 
velopment. Legal  sovereignty,  on  the  other  hand,  is  the 
immediate  exercise  of  supreme  power  in  accordance  with 
the  general  will  of  the  people. 

This  double  aspect  of  sovereignty  may  also  be  character- 
ized as  the  sovereignty  of  force  and  the  sovereignty  of  will, 
or  objective  sovereignty  and  subjective  sovereignty,  a  view 
which  follows  from  our  conclusions  concerning  the  nature  of 
the  state.  The  force  of  the  state,  or  its  supreme  power,  and 
the  will  of  the  state  are  but  two  aspects  of  the  same  thing 
and  mutually  supplement  each  other.  For  will  implies  a 
conscious  activity  directed  towards  a  definite  end,  and  with- 
out such  activity  is  only  a  mere  subjective  wish.  So  also 
sovereign  force  of  a  people,  as  distinct  from  mere  force, 
implies  intelligent  direction  ;  or  we  may  say  that  such  force 
is  intelligently  directed  will,  but  with  supreme  power  for  the 
execution  of  its  ends.  That  is,  the  intelligently  directed 
force  and  the  will,  necessarily  in  one  and  the  same  persons, 
are,  as  we  have  said,  obverse  sides  of  the  same  fundamental 
fact — will,  or  the  activity  of  will.  Hence,  the  sovereign 
power  of  the  slate  is  the  activity,  or  expression,  of  the 
sovereign  will  of  the  people  of  the  state,  and  are  related  as 
effect  to  cause.  The  primary,  subjective  fact  is  will ;  the 
immediate,  objective  fact  is  force,  power. 

If  we  consider  sovereignty  with  respect  to  its  sanction,  or 
to  the  extent  of  its  power,  we  meet  with  the  same  primacy 
of  will.  For  it  must  be  clear  that  the  sanction  for  the  exer- 
cise of  supreme  power  by  a  state,  apparently  in  the  fact  of 
the  power  itself,  is  in  reaHly  in  the  sovereign  will.  To  be 
otherwise  sovereignty  would  be  no  more  than  brute  force. 
Objectively  viewed,  indeed,  the  sanction  is  in  the  fact  of  the 


38  JUSTICE  IN  TAXATION  [374 

possession  of  supreme  power,  but  without  the  originating 
and  directing  will  there  would  be  no  such  power,  nor  does 
the  power  extend  beyond  the  range  of  the  organized  will  of 
the  people,  the  sovereign  will  of  the  state.  But  for  the 
sovereign  will  there  can  be  no  sanction  outside  of  itself,  for 
will  is  a  fundamental  fact  so  far  as  our  purpose  is  concerned, 
since  we  have  not  to  do  with  the  metaphysics  that  traces  it 
to  the  supreme  will  imminent  in  the  human  will. 

So  likewise  with  respect  to  its  extent.  Sovereignty, 
indeed,  as  an  objective  fact  is,  by  its  very  definition,  un- 
limited in  the  degree  and  range  of  its  power,  since  there  can 
be  no  other  power  within  a  state  to  which  it  may  be  sub- 
ordinate. But  since  sovereignty  is  also  objectified  will  it  is 
conditioned  by  the  range  of  the  activity  of  that  will.  Thus, 
again,  will  is  the  ultimate  fact.  The  extent,  or  perhaps 
better  the  content,  of  sovereignty  is  determined,  therefore, 
by  the  character  of  the  will  which  it  represents ;  that  is,  by 
the  character  of  the  wills  of  the  persons  in  whom  the  sover- 
eign will  is  embodied.  Therefore,  though  in  a  sense  will  is 
a  law  unto  itself,  sovereign  will  is,  by  the  very  nature  of  the 
individual  and  the  nature  and  purpose  of  the  state,  an 
ethically  determined  will ;  for,  as  we  have  seen,  it  is  organ- 
ized will  directed  towards  the  good  of  every  person  repre- 
sented in  it. 

2.  Is  there,  then,  any  limitation  to  sovereignty,  or,  are 
there  rights  of  the  individual  as  against  the  sovereign  power? 
Politically,  it  must  be  admitted,  sovereignty  is  absolute  over 
life  and  property.  Under  no  other  condition  can  a  state 
endure.  The  right  of  the  state  to  exercise  compulsion  upon 
the  individual  has  been  sufficiently  discuf^sed  in  discussing 
the  character  of  membership  in  the  state,  where  it  was  shown 
that  forced  obedience  is  justified  as  against  the  individual 
who  sets  his  selfish  will  in  opposition  to  the  general  will,  as 
in  the  violation  of  law,  the  non-payment  of  taxes ;   though 


375]  ORIGIN  AND  NATURE  OF  THE  STATE  3§ 

philosophically  there  is  much  truth  in  the  contention  of 
Hegel  that  the  criminal  wills  his  own  punishment,  wills, 
that  is,  the  direction  of  the  force  of  the  state  against  himself. 

But  are  there  no  limits  to  this  power  of  the  state  over  th6 
individual?  Only  a  moral  limit.  And  hence  the  only  rights 
of  the  individual  against  the  state  are  moral  rights.  Polit- 
ically, that  is  legally,  the  sovereignty  of  the  state  is  abso- 
lute ;  but  in  virtue  of  its  own  ethical  character,  as  well  as 
the  ethical  character  of  the  individuals  in  whom,  upon  whoni 
and  for  whom  it  is  exercised,  it  is  subject  to  moral  Hmita- 
tions.  Or,  there  are  rights  of  the  individual  that  the  sover- 
eign power  of  the  state  is  morally  bound  to  respect,  rights 
that  flow  from  the  very  law  of  his  being.  They  are  in  a 
very  true  sense  "  natural  rights."  They  do  not  depend  upon 
the  state  for  their  existence  as  rights,  but  only  for  a  more 
assured  reality.  As  Green  puts  it:  "The  state,  or  the  sov- 
ereign [he  means  the  government]  as  the  characteristic  insti- 
tution of  the  state,  does  not  create  rights,  but  gives  a  fuller 
reality  to  rights  already  existing."  '  Not  all  "  natural  "  rights 
are  made  legal  rights,  but  only  such  as  are  of  universal  in- 
terest;  and  legal  rights  that  are  not  "natural"  or  moral 
rights  are  not  permanently  enforceable,  since  they  are  antag- 
onistic  lo  the  general  will,  to  the  prevailing  idea  of  right. 

The  ridicule  so  commonly  heaped  upon  the  doctrine  of 
"natural  rights"  loses  its  force  if  the  distinctions  we  have 
made  between  sovereign  force  and  sovereign  will  be  insisted 
upon ;  and  only  by  such  distinctions  is  it  possible  to  arrive 
at  a  true  philosophy  of  taxation.  The  plea  for  justice  in 
taxation,  implied  if  not  expressed  in  almost  every  theory  of 
taxation,  is  proof  of  the  general  conviction  that  there  are 
"natural  rights"  of  the  individual  which  the  state  does  not 
create  but  should  enforce ;  that  the  sovereign  power  of  the 
state  oitght  to  be  governed  by  definite  conceptions  of  these 

'  Political  Obligations,  p.  138. 


40  JUSTICE  IN  TAXATION  [376 

rights,  by  ideaf?  of  justice;  that  the  state — individuals  in 
association — no  less  than  the  individual,  should  be  ethically 
determined.  No  other  conclusion  is  possible  from  the  con- 
ception of  the  state  upheld  in  this  chapter,  which  conceives 
it  to  be  the  purpose  of  the  state  to  enforce  right  and  justice 
to  the  end  of  the  highest  realization  of  the  individual.  The 
right  to  develop,  to  realize  himself,  is  fundamental  to  every 
individual,  and  this  implies  a  right  to  the  means  necessary 
to  attain  the  end,  but  with  a  recognition  of  the  equal  rights 
of  others.  These  rights  of  the  individual  necessarily  in- 
volve obligation  on  the  part  of  the  state,  whose  very  essence 
it  is  to  provide  these  conditions,  to  make  possible  this  de- 
velopment. It  is  by  virtue  of  these  facts — this  conception 
of  the  state — that  ethical  principles  in  taxation  are  de- 
manded ;  and  it  is  in  accordance  with  them  that  ethical 
principles  must  be  determined. 

Our  conception  of  the  nature  of  rights  of  the  individual, 
and  of  the  corresponding  obligations  of  the  state,  may  per- 
haps be  made  clearer  by  an  illustration.  Take,  for  example, 
the  question  of  property  rights.  The  right  to  property,  it 
is  usually  assumed,  is  a  purely  legal  creation,  property  being 
a  question  of  law  and  not  of  right.  From  the  legal  point  of 
view  this  is  entirely  correct ;  but  the  statement  expresses 
only  a  half-truth.  Property,  that  which  is  07ie's  own,  is  also 
an  economic  good,  produced  directly  or  indirectly  by  indi- 
vidual exertion  for  the  satisfaction  of  human  needs,  by  which 
the  self  is  realized.  Such  economic  "  good,"  therefore,  be- 
longs of  right — a  moral,  "  natural  "  right — to  the  individual 
as  his  own,  his  property,  because  it  is  the  objective  expres- 
sion of  his  effort  to  provide  the  material  means,  not  only  of 
life  but  for  individual,  human  advancement.  Or,  to  borrow, 
again,  Hegelian  terminology,  property  is  the  outward  mani- 
festation of  one's  self;  is,  in  a  sense,  the  objectified  self. 
Property  as  a  legal  right  is  only  a  confirmation  by  the  gov- 
ernment of  an  already  existing  moral  right. 


3 77 J  ORIGIN  AND  NATURE  OF  THE  STATE  41 

The  moral,  or  "  natural,"  right  to  property  the  state  is 
bound  to  respect  in  its  demands  upon  the  individual,  as  it 
respects  the  right  to  individual  de<^elopment.  And,  in  fact, 
this  right  to  private  property  in  the  product  of  one's  own 
labor  has  been  recognized  from  the  very  beginning  of  eco- 
nomic life.  The  case  is  quite  different  with  land,  which  as 
a  common  inheritance  was  first  held  in  common  and  only 
later,  partly  as  a  matter  of  expediency  and  partly  from  a  gen- 
eral recognition  of  the  right  to  the  improvements  made  upon 
the  land,  was  made  private  property.  As  Locke  puts  it, 
whenever  one's  own  labor,  which  is  his  own,  is  added  to  a 
natural  object  "  the  common  right  of  other  men  "  is  ex- 
cluded." To  this  right  to  the  products  of  one's  own  labor 
the  government  gives  a  legal  existence. 

If  there  is  only  a  legal  right  to  property,  if  property 
has  only  legal  existence  created  by  tlic  sovereign  power  of 
the  state,  or  by  the  government  acting  for  it,  there  can  be  no 
question  of  the  rights  of  the  individual  to  any  economic 
goods  which  the  state  may  demand,  or  of  the  obligations  of 
the  state  respecting  them.  Expediency,  not  justice,  would 
supply  the  norm  for  taxation.  But  if  property,  that  is  eco- 
nomic goods,  belong  of  right  to  the  producer  of  them,  as 
representing  his  effort  and  sacrifice  to  realize  the  possibilities 
of  his  nature,  then  this  right  should  be  recognized  as  funda- 
mental in  the  determination  of  principles  of  taxation.  Ex- 
pediency must  give  place  to  justice. 

The  preceding  theory  of  the  nature  of  the  state  and  the 
individual,  involving  reciprocal  rights  and  obligations,  will 
be  assumed  as  the  basis  of  the  following  discussion  of  just 
principles  of  taxation.  The  marked  feature  of  this  theory  is 
the  emphasis  that  it  gives,  at  least  by  implication,  to  the 
idea  that  the  problem  of  taxation  is  an  ethical  one ;  that  in 
taxation  as  in  other  matters  the  good  of  the  individual  is  the 
'  Locke,  Civi/  Government,  ch.  v,  sec.  27. 


42  JUSTICE  IN  TAXATION  [378 

fact  of  fundamental  importance,  the  ultimate  object  towards 
which  the  operations  of  the  state  must  tend ;  that,  in  fine, 
the  view-point  of  the  problem  of  taxation,  as  of  all  social 
phenomena,  is  man.  There  will,  however,  be  no  attempt  to 
make  this  theory  the  basis  of  new  and  startling  conclusions. 
The  object  of  this  study  is  rather,  upon  the  basis  of  a  theory 
of  the  state  that,  it  is  believed,  best  explains  its  philosophy, 
to  ascertain  the  true  philosophy  of  taxation;  upon  this  basis 
to  discover,  by  analysis  and  criticism  of  existing  theories, 
the  true  principles  of  taxation ;  and  above  all  to  give  them 
a  rational  justification,  and  not,  as  is  commonly  done,  merely 
assume  the  justice  of  certain  principles  without  full  consid- 
eration of  all  that  is  implied  in  the  mutual  relations  of  the 
state  and  the  individual. 


CHAPTER  III 

TAXATION,  ECONOMICS  AND   ETHICS 

I.  Taxation 

I.  The  Nature  of  a  Tax.  In  the  preceding  chapter  we 
have  learned  that  the  state  is  an  organization  of  persons 
effected  for  the  reahzation  of  a  common  end,  a  common 
"  good  " — a  good  that  is  "  common  "  because  it  is  the  good 
of  every  member  of  the  state ;  that  this  "  good  "  is  from  one 
point  of  view  the  attainment  of  right  and  justice,  while  uUi- 
mately  it  is  the  fullest  realization  of  the  personalities  of  the 
individuals  who  in  their  organized  totality  constitute  the 
state ;  that  primarily  necessary  for  carrying  out  the  ends  of 
the  state  is  the  establishment  of  government — an  organiza- 
tion within  the  state — charged  with  the  general  purpose  of 
acting  as  the  executive  agent  of  the  collective  will  of  the 
state. 

Thus  we  find  that  a  government,  as  the  agent  of  the  state 
in  the  realization  of  right  and  justice  and  in  the  maintenance 
of  conditions  for  the  highest  possible  human  development,  is 
a  fundamental  collective  need  indispensable  to  every  indi- 
vidual, to  t.\zxy  person.  Now  such  a  government  is  not  a 
mere  subjective  idea;  it  is  also  an  objective  fact,  consisting 
as  it  docs  of  a  body  of  persons  selected  for  the  performance 
of  its  functions,  for  executing  the  will  of  the  people — the 
state.  But  that  these  persons  may  perform  the  functions  of 
government,  certain  material  conditions,  or  means,  arc  neces 
sary.  Hence  the  need  of  a  government,  and  so  the  needs  of 
government,  involve  two  classes  of  needs :  personal  service 
379]  43 


44  JUSTICE  IN  TAXATION  [380 

and  material  goods.  But  since  the  persons  who  act  as  the 
government  retain  their  individuality — therefore  their  per- 
sonal wants  satisfied  by  means  of  economic  goods — demand 
for  their  services  resolves  itself  into  a  demand  for  economic 
goods,  or  the  means  for  their  procurement.  Thus,  directly 
or  indirectly,  the  whole  needs  of  a  government  may  be 
summed  up  in  the  need  for  economic  goods ;  on  the  one 
hand,  food,  clothing,  shelter,  etc.,  for  the  governing  class; 
and  on  the  other  hand,  land,  buildings  and  such  equipment 
as  is  necessary  to  provide  place  and  material  for  the  per- 
formance of  the  service,  for  the  preservation  of  records,  etc., 
and  armament,  ships  and  other  essentials  for  national  de- 
fense, both  of  which  conditions  are  essential  for  the  mainte- 
nance of  government.  Immediately  and  directly,  however, 
the  need  of  government  is  revenue — money — by  means  of 
which  it  can  procure  both  service  and  the  material  goods 
necessary  for  the  performance  of  its  functions. 

In  the  past  the  services  and  material  goods  required  by  a 
government  have  been  procured  in  a  variety  of  ways :  By 
tributes  and  booty,  by  feudal  services,  grants,  aids,  etc. ;  by 
the  cultivation  of  crown  lands,  and  by  direct  service  to  the 
state — as  military  duty  and  the  corvee;  and  latterly,  in- 
directly by  means  of  revenue  collected  in  the  form  of  money 
from  the  citizens  of  the  state  in  which  the  government  in 
question  exercises  its  functions.'  In  earlier  times  tributes 
and  booty  constituted  the  principal  source  of  revenue,  in 
medieval  times  feudal  dues  and  crown  lands  were  the  most 
important  source,  but  in  the  modern  civilized  state  the  chief 
source  of  revenue  is  taxation — money  contributions  from  the 
whole  people — though  fees,  fines  and,  in  some  countries, 
government  lands  and  industries  yield  a  not  unimiportant 
part  of  the  total  revenue.  We  are  concerned,  however, 
neither  with  the   history  of  governmental  revenue,  nor  with 

^  See  Wagner,  Finanzwissenschajt,  ii,  sec.  103  et  seq. 


38 1 ]  TAXATION,  ECONOMICS  AND  ETHICS  45 

a  study  of  the  principles  underlying  the  various  kinds  of 
revenue,  but  solely  with  the  principles  that  should  deter- 
mine the  collection  of  that  revenue  which  comes  from  taxa- 
tion. 

What,  in  brief,  is  the  nature  of  the  tax,  whose  princi- 
ples we  seek  to  determine?  Numerous  definitions  of  a 
tax  have  been  given,  though  not  with  complete  success, 
since  too  great  precision  is  attempted  in  a  single  sentence. 
For  our  purpose,  at  least,  it  is  better  to  state  the  funda- 
mental idea  of  a  tax  and  afterwards  to  note  its  leading  char- 
acteristics. Otherwise  there  will  be  inaccuracy  of  statement, 
or  the  need  of  too  many  cjualifications.  I  would,  therefore, 
define  a  tax  as  a  contribution  from  individuals  out  of  their 
private  property  for  the  maintenance  and  defense  of  govern- 
ment, to  the  end  that  it  may  perform  its  functions  and  the 
ends  of  the  state  be  realized.  The  fact  that  contributions 
from  private  property  are  necessary  for  the  support  and  ex- 
penses of  government  results,  in  part,  from  the  change  from 
collective  to  private  economy,  and  in  part,  also,  from  the 
gift  or  sale  of  crown,  or  national  property,  to  individuals  as 
private  property;  in  a  word,  to  the  fact  of  private  property. 
And  so  long  as  the  system  of  private  property  subsists 
individuals  must  contribute  from  their  property  for  the  sup- 
port of  government.  But  whether  the  individual  is  a  mem- 
ber of  the  state  to  whose  government  he  contributes  is  a 
matter  of  no  importance.  The  fact  is  that  contributions  are 
due  from  all  (with  exceptions  to  be  noted  later)  over  whom 
a  government  may  directly  exercise  jurisdiction,  as  with 
respect  to  their  property,  or  for  whom  any  of  its  functions 
may  be  directly  performed,  as  for  the  defense  of  their  per- 
sons or  property. 

In  viewing  the  tax  as  a  '  contribution '  we  have  regarded 
it  solely  from  the  point  of  view  of  the  individual,  and  we 
believe  that  this   point  of  view  is  justified  by  a  true  philos- 


46  JUSTICE  IN  TAXATION  ;382 

ophy  of  the  state  as  emphasizing  the  most  distinctive  fea- 
ture of  a  tax,  philosophically  considered.  But  it  must  be 
admitted  that  there  is  another  aspect  to  a  tax,  the  point  of 
view  of  the  government.  And  from  this  point  of  view  the 
tax  may  be  considered  as  a  method  of  procuring  a  revenue 
to  meet  the  expenses  of  the  government  by  means  of  col- 
lections from  the  private  property,  or  income,  of  individuals. 
From  the  point  of  view  of  the  individual,  therefore,  a  tax  is 
a  '  contribution,'  from  the  point  of  view  of  the  government, 
a  'collection.' 

2.  Characteristics  of  a  Tax.  The  tax  regarded  as  a  'con- 
tribution '  or  as  a  •  collection,'  or  as  both,  does  not  reveal  its 
full  nature,  but  only  its  general  feature.  Particularly  im- 
portant to  a  clearer  understanding  of  the  nature  of  a  tax  are 
two  characteristics  that  are  in  part  suggested  by  its  general 
feature  as  described  above,  (i)  First,  the  question  whether 
a  tax  is  a  tax  upon  persons  or  property;  (2)  Second, 
whether  the  tax  is  voluntary  or  compulsory.  Both  ques- 
tions are  of  importance,  not  only  because  their  answers  will 
throw  light  upon  the  nature  of  the  tax,  but  because  import-^ 
ant  principles  of  taxation  depend  upon  their  determination. 

( I  )  In  the  first  place,  then,  is  a  tax  imposed  upon  persons 
or  upon  property  ?  That  a  tax  is  nominally  levied  upon 
property  no  one  will  question.  But  is  the  tax  in  reality,  in 
its  essence,  a  tax  upon  property  ?  Economically  speaking, 
or  viewed  as  an  objective  phenomenon,  a  tax  is  undoubtedly 
upon  property.  A  government  requires  economic  goods  in 
the  form  of  a  money  revenue  to  defray  its  expenses  in  the 
performance  of  its  functions;  and  this  revenue  is  obtained 
by  a  collection  made  upon  the  private  property  of  individ- 
uals. Government,  in  brief,  requires  property  and  procures 
it  by  assessments  upon  property  and  collections  of  property. 
But  this  view  of  a  tax  explains  only  its  external  and  me- 
chanical character,  its /^r;;m/ character. 


383]  TAXATION,  ECONOMICS  AND  ETHICS  47 

But  as  the  nature  of  things  in  general,  so  also  the  nature 
of  a  tax  is  not  determined  by  its  formal  character,  but  by  its 
subjective  idea,  its  subjective  character.  And  the  subjective 
character  of  a  tax  is  not  determined  by  the  formal  relation 
of  a  government  to  economic  goods,  but  by  the  relation  of 
a  state  to  the  persons  in  whom  and  for  whom  it  has  its  ex- 
istence. For,  as  we  have  seen,  a  state  consists  of  persons 
organized  as  a  body  politic  and  has  for  its  purpose  their 
gradual  development  and  perfection.  State  and  persons  are 
interdependent  and  correlative  to  each  other.  Consisting  of 
persons,  the  state  has  direct  relation  only  to  persons  and  de- 
pendence upon  persons.  Government  being  the  agent  of 
the  state,  it  is  a  necessary  incident  to  it,  and  hence  its  main- 
tenance and  support  is  a  requisite  to  the  maintenance  and 
support  of  the  state.  And  as  the  agent  of  the  state  the  de- 
pendence of  the  governmeht  for  support  is  necessarily  the 
same  as  that  of  the  state,  that  is,  upon  persons.  The  rela- 
tion, we  repeat,  is  to  persons  and  the  dependence  upon  per- 
sons. This  is  involved  in  the  very  idea  of  the  state.  More- 
over, as  the  state,  and  so  the  government,  exists  for  persons 
and  is  a  necessity  to  persons,  the  obligation  of  support  must 
rest  upon  persons,  as  the  necessity  of  support  is  a  necessity 
to  persons.  Neither  necessity  nor  obligation  could  rest  upon 
property  as  such,  though  property  is  e>sential  to  state  and 
government.  The  tax  is  and  can  be  nothing  else  than  a  tax 
upon  persons,  at  least  upon  our  assumption  of  the  true  con- 
ception of  the  state.  Nor,  indeed,  is  the  subjectivity  of  the 
tax,  as  a  tax  upon  persons,  any  less  apparent  when  viewed 
from  its  economic  standpoint  if  only  the  subjective  character 
of  property  be  considered.  For,  subjectively  considered, 
property  is,  as  wc  saw,  the  objectified  self;  and  hence  a  tax 
upon  property  becomes  indirectly  a  tax  upon  persons,  upon 
personal  productive  capacity  and  ability,  upon  the  economic 
means  of  satisfying  personal  wants,  and  thus  upon  the  entire 
personality  of  the  taxpayer. 


48  JUSTICE  IN  TAXATION  [384 

Thus,  whether  we  consider  the  tax  with  respect  to  its  ne- 
cessity to  the  individual  and  to  the  corresponding  individual 
responsibility  and  obligation  (involving  the  relation  of  the 
individual  to  the  state\  or  with  respect  to  its  economic  re- 
lation to  the  individual,  it  is  equally  evident  that,  while  em- 
pirically and  objectively  viewed,  a  tax  is  upon  property, 
ideally  and  subjectively  viewed  it  is  upon  persons.  And  it 
may  be  added  that  this  subjective  character  of  the  tax  has 
far-reaching  results.  It  supplies  the  key  not  only  to  the 
true  philosophy  of  taxation  but  to  the  principles  by  which 
it  should  be  governed.  It  also  furnishes  the  key  to  the 
solution  of  many  otherwise  difficult  problems  in  taxation, 
and  consistently  adhered  to  avoids  much  error  and  confusion 
of  ideas.  "  The  subjectivity  of  the  tax."  says  Vocke,  "  is  the 
Ariadne  thread  that  must  be  firmly  held  if  one  would  avoid 
a  multitude  of  dangerous  mistakes  and  escape  from  the  laby- 
rinth of  obscure  (unklar),  if  also  old  views."' 

(2)  Granting  that  a  tax  is  a  tax  upon  the  person,  is  the 
tax  contribution  voluntary  or  compulsory?  Again,  it  is 
necessary  to  distinguish  between  the  objective  and  the  sub- 
jective character  of  the  tax,  between  the  objective  fact  and 
the  subjective  idea.  As  objectively  considered  from  the 
view-point  of  political  science,  or  of  the  government,  the 
payment  of  taxes  is  necessarily  com.pulsory.  Compulsion, 
in  fact,  is  a  necessary  prerogative  of  objective  sovereignty, 
and  a  necessarj''  consequence  of  the  right  of  the  state  to  be. 
So  dominant,  indeed,  is  this  aspect  of  the  tax  that  the  idea 
of  compulsion  has  become  a  central  feature  in  all  of  the 
definitions  of  a  tax  by  both  the  legist  and  the  economist,  the 
statesman  and  the  financier.  Yet,  historically,  the  begin- 
nings of  the  tax,  as  occasional  "aids,"  "grants"  and 
"  donations,"  were  entirely  voluntary ;  and  only  gradually, 
with  the  change  of  society  from  status  to  contract,  and  the 

*  Vocke,  Die  Abgaben,  Auflagen  und  die  Sieuer,  p.  472. 


3SS]  TAXATION,  ECONOMICS  AND  ETHICS  49 

growing  insufficiency  of  other  sources  of  revenue,  did  these 
contributions  become  regular  and  compulsory.'  And 
curiously  enough,  as  the  consciousness  of  the  unity  and 
universality  of  interest  in  a  stable  government  has  developed, 
and  particularly  with  the  rise  of  the  democratic  state,  the 
compulsory  character  of  tax  contributions  has  become  more 
universal  and  more  rigid. 

But  the  compulsory  feature  of  the  tax  represents  only  one 
side  of  the  question,  either  historically  or  philosophically. 
For,  correlated  with  the  fact  of  an  enlarged  range,  and  the 
rigidity  of  compulsion,  is  the  further  fact  that  with  the 
growth  of  a  more  definite  consciousness  of  our  citizenship, 
and  of  the  vital  relations  that  we  sustain  to  the  state  and  the 
state  to  us,  there  develops  the  conviction  of  an  obligation  to 
contribute  towards  the  support  of  the  government,  and  at 
the  same  time  the  right  of  the  government  to  exact  the  con- 
tribution.' And,  indeed,  this  conviction  attests  the  voluntary 
character  of  the  tax,  at  least  where  its  true  nature  has  been 
duly  reflected  upon.  Nor  is  the  voluntary  character  of  the 
tax  a  mere  subjective  concept  arising  from  conscious  re- 
flection upon  the  nature  of  a  tax.  Taxes  are  in  fact  volun- 
tarily paid,  even  though  the  attempt  is  almost  universally 
made  to  evade  a  part  of  them,  or  a  protest  is  made  against 
their  amount.  At  least  in  all  cases  of  pure  democracy,  or 
of  representative  governments  elected  by  the  people,  the 
people  voluntarily  agree,  directly  or  indirectly,  to  tax  them- 
selves. As  was  pointed  out  when  discussing  the  character 
of  membership  in  a  state,  the  people  who  voluntarily  make 
up  a  state  voluntarily  agree  to  tax  themselves  for  its  support 
and  maintenance ;  and  only  here  and  there  the  self-seeking 
individual  endeavors  to  make  himself  an  exception  to  the 
general  rule,  and  upon  such   it  is   agreed,  individually  and 

^  See  Seligman,  Essays  in  Taxation,  pp.  1-7. 
'  Cf.  Cohn,  The  Science  of  Finance,  sec.  192. 


JO  JUSTICE  IN  TAXATION  [386 

collectively,  that  compulsion  shall  be  applied,  the  voluntary 
and  compulsory  character  of  a  tax  thus  implying  each  other. 
But  not  only  is  the  idea  of  voluntary  taxation  implied  in 
the  voluntary  character  of  membership  in  a  state,  it  is  a 
necessary  consequence  of  the  subjective  idea  of  the  tax  and 
of  the  state.  If,  as  we  have  maintained,  the  fundamental 
basis  of  the  state  is  will,  then  the  same  will  that  creates  the 
state  must  will  to  provide  the  means  for  its  m.aintenance ; 
that  is,  contribution  for  the  support  of  the  state  is  a  volun- 
tary act.  Any  other  theory  can  rest  only  upon  the  pre- 
supposition that  arbitrary  force  is  the  sole  foundation  of  the 
state,  thus  failing  to  distinguish  between  the  empirical  state 
and  the  Concept  state. 

Nevertheless,  the  subjective  idea  of  taxation  docs  not 
exclude  the  idea  of  compulsion.  On  the  contrary,  compul- 
sion, we  repeat,  is  in  the  voluntary  conception  of  the  tax ;  a 
fact  that  must  become  apparent  the  moment  that  we  reflect 
upon  the  distinction  between  the  general  will  and  the 
individual  self  seeking  will,  between  the  social  will  of  the 
individual  and  his  purely  personal  will,  if  we  may  be  allowed 
the  distinction.  In  any  case,  however,  only  the  subjective 
idea  of  the  state  and  the  subjective  idea  of  taxation  can  fur- 
nish a  basis  for  ethical  principles  of  taxation,  for  if  force  is 
the  sole  factor  in  the  problem  there  can  be  no  question  of 
principles,  but  only  of  policy;  still  less  a  question  of  ethical 
principles.  But,  in  fact,  even  the  objective  right  of  compul- 
sion, as  in  the  enforcement  of  the  law  of  universality,  lests 
upon   the  subjective  idea,  or,  perhaps  better,  the  subjective 

fact. 

3.  The  Limits  of  Taxation.  Granting  the  power  of  the 
state  to  impose  taxes  as  a  sovereign  ri^ht — a  right,  however, 
that  has  its  source  in  the  general  will — are  there  any  limits 
to  the  taxing  power?  If  the  question  be  made  to  refer  to 
the  state  proper  it  must  be  said  that  no  theoretical  limits  to 


3S7]  TAXATION,  ECONOMICS  AND  ETHICS  51 

taxation  can  be  assigned ;  for  if  the  state  is  the  people 
organized,  and  represents  their  collective  will,  there  can  be 
no  limit  to  its  power  other  than  that  which  it  determines  for 
itself,  that  is,  which  is  determined  by  the  general  will  in 
view  of  common  ideals.  But  in  view  of  the  fact  that  the 
government,  as  the  agent  of  the  stale,  is  the  practical  taxing 
power,  it  is  wiih  reference  to  the  government  that  the  ques- 
tion has  its  real  hignincance. 

In  discussing,  then,  the  limits  of  the  power  of  the  govern- 
ment in  taxation  we  shall  pass  over  all  specific  reference  to 
the  individual,  since  this  phase  of  the  question  constitutes 
the  essence  of  the  main  burden  of  our  thesis.  Here  we  wish 
only  to  note  a  few  general  observations,  particularly  respect- 
ing the  amount  of  the  tax  burden.  And  in  the  first  place, 
it  may  be  observed  that  the  limits  are  relative,  not  absolute; 
and  that  while  no  a  priori  rule  can  be  given  for  the  limita- 
tion, there  are,  nevertheless,  both  theoretical  and  practical 
limitations.  In  a  general  way  we  may  classify  the  limita- 
tions under  the  following  heads:   political,  ethical,  cconomicj 

(i)  Politically  speaking  the  power  of  a  government  in 
taxation  is  theoretically  limited  by  its  creator,  the  state ;  and 
most  commonly  the  limit  finds  objei.tive  expression  as  a  con- 
stitutional limitation,  especially  under  con^titutional  govern-' 
mcnts.  That  is,  the  will  of  the  people  is  the  final  judge. 
More  than  this,  in  all  representative  governments  the  people 
theoretically  exercise  a  direct  control  over  the  amount  of  the 
tax  in  the  choice  of  their  representatives.  Unfortunately, 
however,  owing  to  party  machinery  and  political  methods, 
the  control  of  the  people  is  very  largely  theoretical  only. 
Where,  indeed,  the  government  falls  into  the  hands  of  a 
"political  aristocracy" — the  politicians — the  people  retain 
only  the  semblance  of  power,  while  the  government  becomes 
practically  absolute. 

And  yet  there  are  practical  limitations,  for  if  the   burden 


52  JUSTICE  IN  TAXATION  [388 

becomes  too  oppressive  there  is  always  danger  of  a  revolu- 
tion, such,  for  example  as  the  Revolution  of  17S9;  unless, 
perchance,  the  oppression  successfully  passes  a  point  where 
resistance  becomes  hopeless,  as  is  ap|)arently  the  present 
condition  of  Italy  and  Spain.  In  countries  of  greater  en- 
lightenment and  a  larger  freedom  there  is  the  restraint  that 
the  fear  of  being  deprived  of  ofificc,  through  the  ballot,  con- 
stantly exercises.  Such  a  limit  is,  however,  very  indefinite. 
It  depends  in  part  on  the  ability  of  the  governing  power  to 
throw  the  burden  on  those  who  have  practically  the  least 
political  power;  in  part  on  the  ability  to  use  the  more  or 
less  deceptive  method  of  creating  public  debts.'  Thus,  po- 
litically a  government  has  in  practice  a  wide  range  of  discre- 
tion in  the  use  of  its  taxing  power,  even  the  constitutional 
restraint  being  very  largely  negatived  in  the  fact  that  the 
government  interprets  the  constitutional  limitations  put 
upon  it. 

(2)  But  though  a  government  has  a  large  range  in  taxa- 
tion politically,  there  are  certain  ethical  limitations  that  are 
incumbent  upon  it,  for  the  government  is,  after  all,  consti- 
tuted of  moral  agents.  Still,  no  definite  moral  rule  of  limi- 
tation can  be  assigned.  All  that  can  be  said  is,  that  since 
the  government  is  the  agent  of  the  state  in  making  condi- 
tions possible  for  the  highest  human  development,  it  is 
morally  bound  to  consider  the  effects  of  any  taxation  in 
retarding  this  development.  But  such  a  limit  is  relative.  It 
depends,  on  the  one  side,  on  the  functions  that  are  assigned 
to  the  government,  and,  on  the  other  side,  on  the  national 
wealth,  on  the  economic  condition  of  the  people.  But  the 
functions  of  government  are  themselves  relative' — relative, 

*  C/.  Adams,  Public  Debts,  ch.  ii  and  pp.  41-2. 

*The  theory  of  the  relativity  of  the  functions  of  government  was  warmly  criti- 
cised by  the  Hegelian  scholar,  Dr.  W.  T.  Hams,  in  a  discussion  following  a  paper 
by  the  writer  on  "  The  Functions  of  Government." 


389]  TAXATION,  ECONOMICS  AND  ETHICS  53 

that  is,  to  the  habits  and  customs  of  a  people,  to  their  ideals, 
their  intellectual  and  moral  status,  their  industrial  life,  their 
political  and  economic  freedom.  The  main  ethical  problem 
of  a  government  in  taxation,  however,  is  the  just  distribution 
of  the  burden,  a  question  we  need  not  discuss  here. 

(3)  Economically,  also,  the  limitations  of  taxation  have 
the  same  relative  character  that  they  have  ethically,  the  same 
indcfiniteness,  the  same  want  of  definite  rule."  Neither  a 
fixed  percentage  of  the  national  wealth,  nor  a  /^r  capita 
average  can  furnish  valid  criteria  for  juilgment.  Hardly 
more  satisfactory  is  the  rule  that  v/ould  limit  the  amount  of 
the  tax  upon  ihe  individual  to  a  fixed  proportion  of  his 
revenue.'  No  less  indefinite  is  the  rule  that  the  amount  of/|i 
taxes  should  be  determined  by  the  needs  of  the  governmental (/ 
for  not  only  are  these  needs  relative  to  the  functions  of  the 
government,  but  iheir  salisfaction  is  conditioned  by  the 
national  wealth  and  general  economic  circumstances.  Of  far 
greater  importance,  since  it  conforms  both  to  the  ethical 
ideal  and  to  sound  economic  policy,  is  the  rule  of  Stein, 
sanctioned  by  Professor  Adams,^  that  the  amount  of  the  tax 
should  be  so  adjusted  as  to  maintain  a  due  proportion  be- 
tween the  satisfaction  of  the  needs  of  the  state  and  the  needs 
of  the  individual.  True,  the  difficulty  of  this  rule  is  the  prac- 
tical determination  of  a  "  due  proportion,"  a  problem  that  is 
very  largely  influenced  by  economic  and  ethical  conditions. 
The  solution  of  ihe  problem,  however,  is  made  theoretically 
simi)le  by  the  utilitarian  economists  by  an  application  of  the 
doctrine  of  marginal  utility.  But  for  reasons  that  will  be  given 
later,  utilitarian  economics  has,  to  my  mind,  a  very  limited 
application  in  public  finance,  being  subject  to  the  delusions 

*  Cf.  Wagner,  op.  cit.,  s?cs.  104-106.  C/.  also  Adams,  Public  Finance,  pp.  26-33. 
'  See  Vauban,  La  Dime  Royale. 
"Adams,  The  :Science  0/  Finance,  p.  28. 


54  JUSTICE  IN  TAXATION  [390 

that  are  so  common  in  reasoning  from  analogies.  Still,  the 
rule  is  economically  and  ethically  sound  as  a  rule  for  guid- 
ance. But,  perhaps,  the  most  practical  economic  rule  is  that 
taxes  should  not  be  so  large  as  in  any  way  to  impair  their 
source.  That  is,  the  economic  limitation  is  determined  by 
the  efifects  of  taxes  upon  industries,  and  so  upon  the  sources  of 
revenue.  This  phase  of  the  question  we  will  discuss  under 
the  following  head. 

II.  Taxation  and  Economics 

The  economic  life  of  a  people  is  intimately  related  to  its 
social  life,  not  only  because  it  is  itself  a  phase  of  the  social 
life,  but  also  because  economic  goods  form  the  matcriiil 
basis  of  the  existence  and  usefulness  of  all  social  groups, — 
religious,  philanthropic,  scientific,  etc., — as  well  as  of  ihc 
political  group  itself.  That  is,  social  well-being  is  condi- 
tioned by  economic  well-being.  Whatever,  therefore,  affects 
the  economic  life,  or  the  economic  conditions  of  a  people, 
affects  also  its  social  and  so  its  individual  well-being.  Hence 
it  becomes  of  grave  importance  that  a  government  in  exer- 
cising its  power  of  taxation,  in  collecting  economic  goods 
from  individuals,  should  carefully  observe  any  economic 
efifects  that  taxes  may  have,  whether  due  to  the  methods  of 
taxation,  the  amount  of  the  taxes,  or  to  other  causes. 

These  effects  we  cannot  stop  to  discuss  in  any  detail,  but 
must  confine  ourselves  to  pointing  out  some  of  their  more 
important  features  and  tendencies,  not  only  to  indicate  the 
character  of  the  problem  involved,  but  also  to  emphasize  the 
fact  that  justice  in  taxation  cannot  be  realized  except  by  due 
observance  of  economic  laws  and  principles.  For  while  this 
aspect  of  the  question  is  essentially  one  of  the  economics  of 
taxation,  rather  than  of  the  piinciples  of  taxation,  a  clear 
understanding  of  the  character  of  the  effects  of  a  tax  is  an 
indispensable  prerequisite  to  the  determination  of  principles  ; 


39 1]  TAXATION,  ECONOMICS  AND  ETHICS  55 

since  the  justification  of  principles  must  be  found  in  tho 
effects  resulting  from  their  practical  application,  not  in  a 
priori  formulae.  Indeed,  it  is  because  of  the  influence  that 
taxation  has  upon  the  production,  distribution  and  consump- 
tion of  wealth  that  it  is  of  special  economic  and  ethical  im- 
portance to  consider  its  efifccts,  since  these  have  an  import- 
ant bearing  upon  principles  of  taxation,  as  no  system  can  be 
just  which  unduly  and  unequally  affects  the  opportunities,  or 
material  means  of  development.  In  the  economic  effects 
of  a  tax,  therefore,  and  more  particularly  in  the  effects  upon 
consumption,  is  to  be  found  an  important  factor  in  determin- 
ing the  justice  of  principles  of  taxation. 

I.  Taxation  and  Production.  The  question  specially  in- 
volved here  is  not  that  of  taxes  as  an  element  in  the  cost  of 
production.  It  goes,  indeed,  without  saying  that  taxes  must 
constitute  an  essential  elenient  in  the  cost  of  production  so 
long  as  government  shall  be  necessary  to  guarantee  the  pro- 
tection, security  and  order  that  make  production  possible, 
and  so  long  as  taxes  shall  be  necessary  for  the  support  of 
government.  More  strictly,  taxes  are  a  preliminary  expense 
that  make  the  conditions  of  production  possible;  but  they 
are  none  the  less  a  necessary  part  of  the  cost.  Nor,  again, 
is  the  question  one  of  the  possible  use  of  taxes  to  further 
production  by  the  government,  as,  for  example,  by  the  pur- 
chase of  railroads  or  other  industries.  This  is  a  question  of 
policy  and  of  the  functions  of  government  as  well  as  an 
economic  question,  and  is  too  large  a  subject  to  be  consid- 
ered here.  No,  the  question  with  which  we  are  concerned, 
is  the  effect  of  taxes  upon  the  production  of  individuals,  and 
thus  u|)on  economic  progress  and  the  general  material  well- 
being  of  the  individual  and  of  society. 

Do,  then,  taxes  encourage  or  discourage  production?  To 
this  question  different  answers  have  been  given.  On  the  one. 
side  there  is  the  doctrine  that  taxes  necessarily  stimulate 


I 


56  JUSTICE  IN  TAXATION  [392 

production,  a  theory  successfully  overthrown  by  Hume/ 
McCulloch  accepts  the  reasoning  of  Hume  but  quaUfies  his 
acceptance  with  the  statement  that,  "  it  is  undoubtedly  true 
that  the  desire  to  maintain  and  improve  their  condition, 
stimulates  most  men  to  endeavor  to  discharge  the  burden  of 
additional  taxes  by  increased  industry  and  economy,  without 
allowing  them  to  encroach  on  their  means  of  subsistence,  or 
on  their  fortunes."^  On  the  other  hand,  J.  B.  Say.  who 
viewed  the  problem  from  a  different  aspect,  thought  it  "  a 
glaring  absurdity  to  pretend  that  taxation  contiibutcs  to  the 
national  wealth,"  since  "  capital  is  but  an  accumulation  of  the 
very  products  that  taxation  takes  from  the  subject;"  3  that 
is,  since  the  source  of  a  tax  and  of  capital  is  one  and  the 
same,  and  to  increase  the  one  is  to  diminish  the  other. 

The  fact  of  the  case,  however,  is  that  general  positive 
statements  can  not  be  safely  made  on  either  side  of  the  ques- 
tion. The  effects  of  taxation  on  production  are  relative  to  a 
great  variety  of  circumstances  and  conditions,  and  these  a 
government  should,  as  far  as  possible,  take  into  account  in 
its  tax  systems  and  methods.  What  the  efi'ects  of  a  tax 
upon  production  are,  depends,  in  fact,  very  largely  upon  the 
laws  of  shifting  and  incidence  in  taxation.  But  these  laws 
are  by  no  means  simple  in  character;  they  depend  upon 
many  conditioning  influences,  and  are  specific  rather  than 
general  in  their  nature.  We  cannot,  however,  stop  to  dis- 
cuss this  aspect  of  the  question  further  than  to  call  attention 
to  the  evident  fact  that  the  efifect  of  a  tax,  and  therefore  its 

'  See  Hume,  Essay  on  Taxes. 

»McCuUoch,  Taxation  and  Fundins;,  p.  7  (ed-  1S52).  For  similar  views  of 
Petty  and  Temple  see  Seligman,  Shifting  and  Incidence,  p.  16.  Cf.  also  Bear, 
r Avert  e  Phnposte,  p.  126.     Also  Mill,  Polit.  Econ.,  sec.  3,  bk.  v,  ch.  iii. 

»  Say,  rolitical  Economy,  bk.  iii,  ch.  viii,  sec.  i.  For  conditicns  in  which  the 
tax  may  lower  or  raise  the  "  n.arginal  cost,"  cr  influence  the  rate  of  remuneration, 
see  Edgeworth,  The  Pure   1  lieory  oj  Taxation,  in  Economic  Journal,  Vol.  vii, 

P-S7- 


393 1  TAXATION.  ECONOMICS  AND  ETHICS  57 

incidence,  is  indissolubly  linked  with  the  problem  of  justice;  ] 
and  also  to  point  out  some  of  the  more  important  conditions 
determining  the  shifting  and  incidence  of  taxation.  I'hat  is 
to  say,  the  justice  of  a  tax  is  largely  conditioned  by  its 
effects,  the  effects  are  intimately  connected  with  its  incidence, 
and  the  incidence,  as  we  have  said,  is  determined  by  various 
conditions. 

Among  the  more  important  of  such  conditions  arc  the  fol- 
lowing: Whether  the  industries  taxed  follow  the  law  of  con- 
stant, increasing  or  decreasing  returns;  whether  or  not  they 
are  monopolies ;  whether  or  not  there  is  mobility  of  capital 
and  labor;  whether  the  tax  is  based  upon  value  or  is  a  tax 
upon  surplus ;  whether  the  demand  for  the  taxed  commo- 
dity is  elastic  or  inelastic;  whether  or  not  the  "  law  of  sub- 
stitution" is  possible;  whether  the  tax  is  high  or  low; 
whether  special  or  general ;  the  condition  iA  the  market  for 
labor  and  capital;  the  economic  condition  of  the  industry 
taxed  relatively  to  other  industries;  the  form  of  the  imposi- 
tion and  the  kind  of  taxes,  as,  for  example,  whether  the  tax 
is  direct  or  indirect;  and  the  kind  of  industry  taxed  .md  the 
stage  of  the  industrial  process  in  which  the  industry  is  taxed. 
In  brief,  whatever  conditions,  arising  from  taxation,  that  have 
an  influence  upon  price  determine  the  mann.cr  and  degree  of 
shifting  and  incidence,  since  these  are  essentially  phenomena 
of  price,  the  objective  determination  of  which  is  the  law  of 
demand  and  supply,  the  subjective  determination  the  law  of 
marginal  utility.' 

'  For  the  best  statement  of  the  history  and  theory  of  shifting  and  incidence,  see 
Seligman,  Shifting  and  Incidence  of  Taxation.  See  also  Kaizl,  Die  I  ehre  vcn 
der  Uberw  Iziivg  der  Steiiem.  For  a  theoretical  stufly  of  the  fir^t  four  *'  condi- 
tions" mentioned  in  the  text  see  the  al:le  article  of  Prof.  Edgevvoith  on  "The  I'ure 
'theory  of  Taxation,"  Economic  Join  nal.  Vol.  vii.  Thcsi  conditions  are  net 
treated  by  Prof.  Edgeworth  singly  but  in  groups  of  assumed  combinations.  He 
takfs  into  consideration  also  the  effects  of  '"short"  and  "long  peri  ds,"  and 
whether  the  lax  is  on  rival  or  coml'lementai-y  industrits.  'Ihe  artiJe  is  a  splendid 
illustration  of  both  the  complexity  and  the  difficulty  of  the  proLlcm  of  "shilting 
and  incidence." 


58        ^.^  JUSTICE  IN  TAXATION-  [394 

It'is  the  influences  of  such  individual  or  combined  condi- 
tions as  the  above  that  help  to  determine  the  operation  of  a 
tax,  and  without  a  clear  understanding  of  these  influences 
it  is  impossible  to  determine  the  effect  of  a  tax  upon  produc- 
tion.    And  yet  they  tell  us  but  one  side  of  the  problem. 
By  studying  the  effect  of  these  influences  we  may  learn  the 
effect  of  a  tax  upon  price  and  upon  the  demand  and  supply 
for  the   products  taxed,  but  not  necessarily  the  effect  of  a 
tax   upon  production.     The  question  of  the  effect  of  a  tax 
upon  production  is  primarily  and  immediately  a  question  of 
its  effect  upon  the  accumulation  and  employment  of  capital^ 
and    upon   the   zeal   and  industry  of    labor.     An  important 
clement  in  the  solution  of  this  problem  is  undoubtedly  the 
influence  of  demand   and  supply  operating   through  price, 
itself  largely  determined  by  the  above-mentioned  conditions. 
But  this   is    not  the    only  element   of    the  problem.       It  is 
necessary  to  know,  not  only  the  effect  of  a  tax  upon  price 
and  demand,  but  also  the  effect  of  a  tax-deteimined  price 
upon  the  profits  of   capital   and   labor.     Nor  even  then  can 
we  say  with   any   definiteness  what   effect   these   combined 
influences  will  have  upon   production.     Positive  statements 
concerning  the  effects  can  result  only  from  an  incomplete 
apprehension  of  the  facts  involved. 

Let  us  take,  for  example,  the  assumption  of  Say,  that 
taxes  always  tend  to  cimini>h  prcduction  for  the  reason  that 
what  is  spent  as  a  tax  would  otherwise  have  been  consumed 
as  capital;  or  the  opposite  theory,  that  a  tax  tends  to  stimu- 
late productive  activity,  or  to  "  create  the  ability  to  bear  it," 
en  the  ground  that  the  desire  to  maintain  a  certain  standard 
of  living  stimulates  to  greater  industry  and  labor  whenever  a 
tax  curtails  the  means  of  maintaining  the  desired  standard. 
The  fact  is  that  both  assumptions  aie  only  partial  truths.  In 
both  also  there  is  a  Jion  seqiiiltir.  Not  only  is  it  clearly  not 
a  fact  that  what  is  spent  as  a  tax  would  otherwise  have  beea 


395]  TAXATION,  ECONOMICS  AND  ETHICS  59 

employed  as  capital,  but  it  by  no  means  follows  that,  because 
both  the  tax  and  capital  have  the  same  source,  to  increase 
the  one  is  to  diminish  the  other,  since  all  other  expenditures 
have  the  same  source.     How  that  part  of  the  income  which 
is  consumed  as  taxes  would  have  been  spent  but  for  the  tax 
depends  in  part,  indeed,  upon  the  possibility  of  profits,  but 
also  in  part  upon  the  character  and  habits  of  the  individual 
taxpayer.     And  in  like  manner  is  determined  whether  a  tax 
effects  a  greater  utility  of  industry  and  labor.     Influences  are 
at  work  in  both  directions  and  the  final  efTect  is  a  resultant  of 
many  opposing  forces.    But  whatever  the  general  tendencies, . 
there  can  be  no  doubt  but  that  an  excessive  tax  curtails  pro-  [ 
duction,  while  a  moderate  tax  may,  at  least  under  certain; 
circumstances,  afiford  a  stimulus  to  greater  production  or  to' 
larger  accumulations  of  capital.^ 

It  is,  indeed,  in  the  fact  that  taxes  may  work  both  waya 
upon  both  capital  and  labor,  may  even  have  one  efifect  upon 
one  class  of  producers  and  the  opposite  effect  upon  another 
class,  that  makes  it  of  such  importance  that  a  government, 
in  the  determination  of  the  amount  and  adjustment  of  taxes, 
should  carefully  consider  their  possible  effects,  and  so  the 
conditions  under  which  those  effects  are  likely  to  be  pro- 
duced. Nor  is  this  importance  confined  to  the  immediate 
effect  of  taxes  upon  production.  It  is  shown  as  well  in  the 
logical  results  of  our  assumptions.  To  assume,  for  example, 
that  taxes  always  encourage  production  is  not  only  to  assume 
a  fallacious  doctrine,  but  also  a  dangerous  principle,  since 
there  would  be  no  logical  limit  to  the  extent  of  taxation;, 
while  the  assumption  that  taxes  always  lessen  production,, 
besides  being  false,  tends  to  exaggerate  the  rights  of  the  in- 
dividual as  against  the  state  and  to  cripple  the  necessary 
needs  of  the  government.     The  possible  indirect  effects  upon 

*  C/.  Marshall,  Prhidp/es  of  F.coromtcs,  p.  28S  (2d  ec'.).     Also  Pantaleoni 
Teoria  dclla  Fressioiie  Tribtilaria,  p.  41. 


6o  JUSTICE  IN  TAXATION  [396 

production  would  be  far  reaching.  Thus,  both  because  of 
its  direct  and  its  indirect  effects,  a  government  is  morally 
bound  to  consider  the  effect  of  its  tax  impositions,  both  with 
respect  to  their  amount  and  their  adjustment.  The  constant 
/aim  should  be  to  interfere  as  little  as  possible  with  the  pro- 
r  cesses  of  production. 

Whether  a  government  should  encourage  production  by 
means  of  protective   tariffs   or   otherwise — creating  limited 
legal  monopolies — is  a  different  matter.     This  is  a  question 
of  the  functions  of  government  and  of  governmental  policy, 
not  of  public  finance.     But  when  a  government  by  its  tax 
system,  or  by  the  amount  of  its  taxes,  unnecessarily  curtails 
production  or  produces  unequal  conditions  of  production,  it 
does  an  injustice  to  the  taxpayers  affected  by  lessening  their 
ability,  absolutely  or  relatively,  to  satisfy  their  wants ;   and 
/at  the  same  time  lessens  its  own  efificiency  by  diminishing 
the  source  of  its  material  means  of  usefulness ;   thus  con- 
stantly threatening  stagnation,  if  not  degeneracy,  instead  of 
promoting  the  highest  development,  intellectually,  morally 
and    spiritually — by   promoting  the    material    conditions   of 
such  development.     That  the  task  of  the  government  in  duly 
\  observing  the  efifects  of  its  taxes  and  tax  system  upon  pro- 
;  duction  is  a  difificult  one  can  not  be  denied.     The  complexity 
;  of  the  conditions  that  enter  into  the  problem  makes  this  in- 
5  evitable.     Nevertheless,  consideration  of  these  effects  is  nec- 
;  essary,  both  that  production  in  general  may  not  be  unnec- 
essarily checked,  and  that  the  production  of  one  class  may 
not  be  promoted  at  the  expense  of  another  class,  thus  effect- 
ing inequalities  and   injustice,  instead  of  the   equality  and 
\  justice  for  which  a  government  stands. 

2.  Taxation  and  Distribution.  The  effect  of  taxation 
upon  distribution  is  not  less  important  than  its  effect  upon 
production,  not  only  because  of  the  influence  of  the  distribu- 
tion of  wealth   upon   economic   and   social  conditions,  but 


357]  TAXATION,  ECONOMICS  AND  ETHICS  6 1 

because  the  distribution  of  wealth  is  a  very  large  factor  in 
the  determination  of  the  character,  methods  and  amount  of 
production.  For  instance,  large  industries  and  large-scale 
production  are  economic  phenomena  which  have  their  eco- 
nomic basis  in  large  accumulations  of  capital,  which  change 
the  whole  relation  of  capital  to  labor  as  well  as  relative  social 
conditions.  Both  the  economic  and  social  importance  of 
distribution,  therefore,  demand  that  careful  consideration 
should  be  given  to  the  possible  efifects  of  taxation  upon  the 
distribution  of  wealth.  The  importance  of  the  social  and 
economic  effects  of  the  distribution  of  wealth  must  be  as- 
sumed as  self-evident.  To  adequately  treat  the  question 
here  would  take  us  too  far  afield  into  a  discussion  of  social 
and  economic  problems.  I  would,  however,  call  attention 
to  four  different  ways  in  which  taxes  do,  or  may,  influence 
distribution ;  and  at  the  same  time  call  attention  to  some  of 
the  more  immediate  effects. 

(i )  In  the  first  place  there  is  the  inevitable  change  in  the 
distribution  of  wealth  consequent  upon  taxation  and  the 
expenditure  of  its  proceeds.  Wealth  is  taken  from  the  pock- 
ets of  the  producing  class  and  transferred  to  the  pockets  of 
those  who  perform  the  services  of  the  government  or  pro- 
vide it  with  material  goods.  This  is  unavoidable  in  modern 
political  societies  where  co-operative  division  of  labor  is  so 
fully  realized.  But  no  hardship  or  injustice  is  thereby  in- 
curred. Those  who  provide  the  revenue  and  those  who  con- 
sume it  in  performing  the  functions  of  government  are 
equally  supporters  and  maintainers  of  the  government,  and 
both  are  equally  gainers  by  this  division  of  labor.  There  is 
no  injustice,  therefore,  in  this  effect  of  taxation  upon  distri- 
bution, so  long,  at  least,  as  the  effect  is  but  the  normal  result 
of  legitimate  taxation  to  meet  the  essential  needs  of  the 
government. 

(2)  The  second  method  by  which  taxation  may  (indeed 


62  JUSTICE  IN  TAXATION  [398 

does)  effect  dis'iibution  is  by  the  tax  system  itself.  This 
method  is  essentially  indirect.  Two  illustrations  will  make 
this  method  sufficiently  clear :  Protective  tariffs  and  per- 
sonal property  taxes. 

Granting  the  legitimacy  and  justice  of  protective  tariffs, 
their  first  and  more  direct  effect  is  to  divert  wealth  from  em- 
ployment in  natural  channels  of  production  to  artificially 
created  channels.  This  in  itself  may  be  an  economic  gain 
to  the  whole  community  as  well  as  to  those  immediately 
concerned.  But  however  this  may  be,  protective  tariffs  have 
the  further  effect  of  establishing  special  privileges  to  certain 
classes,  making  possible  the  colossal  fortunes  of  the  Carne- 
•gies  and  Rockefellers.  The  same  is  true  of  any  other 
monopoly-creating  tax.  The  importance  of  these  changes 
lies  not  only  in  their  reactive  effects  upon  the  methods  and 
amount  of  production,  but  also  in  widening  social  distinc- 
tions and  creating  social  discontent. 

The  distribution  effected  by  the  abominable  system  of  per- 
sonal property  taxes  in  the  United  States,  while  more  indi- 
rect and  less  perceptible  is  not  less  certain,  and  at  the  same 
time  results  only  in  the  most  patent  injustice.  Such  taxation 
is  practically  regressive ;  the  richer  classes  having  larger  ac- 
cumulations of  personal  property,  more  easily  evade  the  tax 
assessor.  The  tendency  of  such  a  tax  system  is  to  foster 
the  growth  of  large  fortunes  by  relieving  them  of  their  just 
burdens,  but  at  the  expense  of  the  smaller  fortune.  One 
)  class  in  society  pays  the  taxes  of  the  other  class.  The  eco- 
nomic effect  is  precisely  the  same  as  if  property  was  forcibly 
taken  from  the  one  class  and  transferred  to  the  possession  of 
the  other.  To  this  economic  injustice  there  is  added  the 
political  injustice  of  throwing  the  heaviest  burden  of  taxa- 
tion upon  those  who  have  the  least  ability  to  bear  it.  Thus, 
again,  instead  of  promoting  justice  and  equality  the  govern- 
ment is  made  an  instrument   in  fostering  injustice  and  un- 


399]  TAXATION,  ECONOMICS  AND  ETHICS  63 

equal  opportunities,  with  ths  attendant  social  ncqualities. 
The  same  unjust  influence  upon  distribution  is  eff^xted  by 
any  system  of  taxation  that  results  in  an  unequal  assessment 
and  collection  of  the  tax  burden. 

(3)  The  influence  of  the  rate  of  taxation  upon  distribu- 
tion involves  chiefly  the  question  of  proT;rcssive  taxation,  for 
a  strictly  proportional  tax  leaves  the  same  relative  distribu- 
tion of  wealth  after  as  before  the  tax,  effecting  di>tribution 
only  in  such  manner  as  is  inseparable  from  the  nature  and 
use  of  taxation.  The  maintenance  of  the  same  relative 
economic  conditions,  or  the  equalizing  of  the  burdens  of  tax- 
ation, may  also  be  the  special  object  of  the  progressive  rate, 
and  so  far  as  this  purpose  is  carried  out  the  progressive  rate 
simply  corrects  the  defects  of  the  proportional  rate  by  ao 
compl'sh'ng  in  fact  what  it  stands  for  in  theory.  The  justice 
of  the  progressive  rate  from  this  point  of  view  will  come  up 
for  discussion  in  a  future  chapter.  We  need  only  to  observe 
here  that  however  just  the  progressive  tax  may  be  it  e.Tects 
a  different  distribution  from  that  entailed  by  a  proportional 
tax,  though  only  such  as  is  incident  to  the  system  itself. 

It  is  a  far  more  serious  question  where  progressive  Ir.xn- 
tion  is  used  with  the  deliberate  purpose  of  effecting  an  arti- 
ficial distribution  of  wealth,  as  in  the  social-political  theory 
of  Wagner.'  Such  a  use  of  taxation  is,  however,  a  social 
use  and  does  not  strictly  come  within  the  province  of  public 
finance.''  Moreover,  it  rests  upon  the  assumption  that  it  is' 
a  proper  function  of  government  to  equalize  the  fortunes  ofj 
individuals.  This,  however,  is  not  an  admitted  fanction  of 
government  in  the  modern  state,  though  it  was  practiced  by 
the  ancient  Hebrews, ^  was  attempted  by  some  of  the  Spar- 

^  Op.  cit ,  ii,  pj).  207,  3S5-6  and  455-9.     Also  i,  p.  47. 

*  Cf.  Meyer  op.  cit.,  sac.  67 ;   Vocke,  vp.cii.,  p.  43,  andMarzano,  Compendia  di 
Scienza  delle  finance,  p.  116. 

^  Levi/icus,  x\v,  ;o. 


I 


64  JUSTICE  IN  TAXATION  [400 

tan  kings,*  and  recommended  by  the  agrarian  reformers  of 
ancient  Romc,'^  At  the  present  time  this  doctrine  finds  de- 
fenders only  in  the  different  schools  of  socialism.  The 
weakness  of  the  whole  doctrine  is  excellently  summed  up  by 
Professor  S-ligman,  when  he  says  that  "  a  legal  equality 
which  would  attempt  to  force  an  equality  of  fortune  in  the 
face  of  inevitable  inequalities  of  native  ability  would  be  a 
travesty  of  justice."^     Further  comment  is  unnecessary. 

(4)  A  final  use  of  the  progressive  rate  is  to  effect  a  com- 
plete revolution  in  the  distribution  of  wealth  by  converting 
private  wealth  into  public  wealth  by  a  process  of  confisca- 
tion. This  is  advocated  only  by  the  extremes  of  socialism, 
and,  with  respect  to  land,  by  the  disciples  of  Henry  George. 
This  use  of  the  lax  is  so  foreign  to  present  ethical  standards 
that  it  has  no  practical  significance  and  needs  not  to  be  dis- 
cussed here. 

In  the  brief  summary  that  we  have  attempted  of  the  possi- 
ble influence  of  taxation  upon  distribution,  inclusive  of  the 
effects  upon  social  and  economic  conditions — upon  spiritual 
as  well  as  upon  material  development — sufficient,  I  think, 
has  been  said  to  emphasize  the  necessity  of  great  care  lest 
distribution  be  too  arbitrarily  and  too  unnecessarily  affected 
by  taxes.  It  illustrates  also  the  truth  of  the  statement  of 
Professor  Adams,  that  "the  distribution  of  wealth  within  a 
country  is  of  as  much  importance  to  its  public  economy  as 
the  possession  of  wealth. "•♦ 

But  besides  its  social  and  economic  importance,  the  use  of 
taxation  to  effect  a  distribution  of  wealth  other  than  is 
entailed  in  the  system  itself,  has  the  further  importance  that 
it  violates  the  "  natural  right"  to  property  as  understood  in 
the  preceding  chapter.     As  was  there  indicated  the  claim  of 

^  See  Plutarch's  Lives  of  A^is  and  Cleomenet. 

*See  Plutarch's  Lives  of  the  Gracchi.  *  Progressive  Taxation,  p.  C9. 

*  Adams,  L'ul/hc  Debts,  p.  151. 


40l]  TAXATION,  ECONOMICS  AND  ETHICS  65 

the  state,  or  government,  is  limited  to  its  needs.  To  go 
farther  than  this,  to  appropriate  the  property  of  some  to  be- 
stow it  upon  others,  however  indirectly,  is  to  transgress  the 
"  natural  law,"  is  to  commit  an  injustice. 

3.  Taxation  and  Consumption.  Only  recently  has  con- 
sumption played  any  important  part  in  either  economics  or 
public  finance.  With  the  classical  economists  the  safe-guard- 
ing of  production  was  regarded  as  a  prime  element  in  a  sound 
theory  of  taxation ;  while  the  ethical  economists  and  the 
socialists  have  given  special  attention  to  distribution — both 
the  distribution  of  the  tax  burden  and  the  use  of  the  tax  in 
the  distribution  of  wealth.  It  has  remained  for  the  subjec- 
tive economists — the  Austrian  school — to  lay  emphasis  upon 
the  relation  of  taxation  to  consumption. 

Of  these  several  interests  consumption  is  of  most  vital 
importance;  for  objectively  and  economically  considered, 
consumption  is  the  end  of  all  production,  and  we  may  add 
also  of  distribution ;  while  subjectively  and  ethically  con- 
sidered, consumption  is  the  process  by  which  the  wants  of 
the  individual  are  satisfied,  so  far  as  they  are  materially  de- 
termined— that  is,  the  self-perfected,  realized.  Emphasis 
upon  consumption,  therefore,  is  a  recognition  of  man  as  a 
compound  of  needs  whose  realization  is  the  essence  of  his 
being.  It  changes  the  view-point  from  the  thing  to  the  per- 
son, the  means  to  the  end.  Not  the  creation  of  wealth,  but 
the  use  of  it,  is  made  the  fact  of  most  importance.'  In  the 
power  of  consumption  is  seen  the  best  measure  of  material 
well-being;  but  material  well-being,  at  least  until  a  certain 
standard  is  attained,  has  a  most  important  bearing  upon  the 
development  of  the  whole  spiritual  life  of  man. 

In  fact,  consumption,  both  by  its  amount  and  by  its  char- 
acter, entails  far-reaching  results.  It  profoundly  affects  pro- 
duction by  affecting  the  efficiency  of  labor ;   for  efficiency  is 

*  Cf.  Walker,  Political  Economy^  p.  294, 


66  JUSTICE  IN  TAXATION  [402 

determined  more  by  what  one  consumes  than  by  what  he 
produces.  The  amount  and  character  of  consumption  affect 
also  distribution,  as,  for  example,  by  their  influence  upon 
the  standard  of  life,  which,  in  turn,  has  its  efTect  upon  effi- 
ciency. Whatever,  therefore,  affects  consumption  affects  the 
whole  economic  life;  but  whatever  afifects  the  economic  life 
affects,  directly  or  indirectly,  man's  complete  development. 
For  these  reasons,  and  because  private  property  is  an  ex- 
pression of  human  personality,  of  the  effort  to  satisfy  human 
wants,  the  government  is  in  duty  bound  to  observe  the  great- 
est care  that  its  system  of  taxation  does  not  unnecessarily 
interfere  with  individual  consumption. 

But  the  practical  determination  of  what  part  of  individual 
wealth  should  go  to  the  satisfaction  of  individual  wants,  and 
what  part  should  be  given  to  meet  the  needs  of  the  govern- 
ment— to  satisfy  collective  needs — is  a  problem  of  the  most 
difficult  character,  involving  as  it  does  so  many  complicated 
conditions  and  circumstances.  As  worked  out  by  the 
Austrian  economists,'  however,  the  theoretical  solution  of 
the  problem  is  made  simple  enough,  by  placing  the  satisfac- 
tion of  collective  needs  upon  exactly  the  same  footing  as  the 
satisfaction  of  private  needs.  That  is  to  say,  the  same  laws 
of  subjective  values,  of  marginal  utility,  that  rule  in  private 
economy  are  made  to  rule  in  public  economy.^  The  doc- 
trine, however,  contains   no   new  principle,  but  applies  to 

^  Meyer,  Sax  and  Wieser.  This  school  has  a  strong  following  in  Italy,  Ricca- 
Salerno  being  one  of  its  most  able  exponents.  His  Scienza  delta  Finanza  is  an 
excellent  and  lucid  resume  of  the  more  pretentious  work  of  Sax. 

''■  The  credit  of  first  applying  the  economic  theory  of  subjective  values  to  finance 
is  claimed  by  Sax  for  himself.  His  theory,  however,  is  substantially  the  same  as 
that  of  Robert  Meyer,  in  spite  of  the  effort  to  prove  a  difference.  The  Italian 
economists  do  not  concede  the  credit  to  the  Austrians.  Mazzola,  in  a  note  to  his 
I  Dati  Scientifici  delta  Finanza  Pubtica,  p.  24,  claims  the  honor  for  Pantaleoni, 
referring  to  an  article  published  by  him  in  1883  in  the  Kassegna  liatiana,  en- 
titled :   Contributo  alia  Teoria  delle  Sped  Publichi. 


403]  TAXATION,  ECONOMICS  AND  ETHICS  67 

finance  as  to  economics  a  principle  long  familiar  to  utilitar- 
ian, or  better  Hedonistic,  ethics — the  obtainment  of  the 
greatest  possible  pleasure  at  the  least  possible  sacrifice. 

We  may  for  the  present  dismiss  this  theory  with  the  re- 
mark, that  while  most  extravagant  claims  are  made  for  it 
(which  will  be  considered  more  fully  later)  it  correctly 
recognizes  the  fact  that  the  satisfaction  of  collective  and  of 
private  needs  is,  in  a  sense,  mutually  exclusive,  or  that 
taxes  lessen  the  consuming  power  of  the  taxpayer.  It  is 
this  fact  that  makes  the  problem  such  an  important  one. 
Yet  it  is  quite  as  true  to  say  that  the  satisfaction  of  collective 
and  of  private  needs  supplement  each  other,  for  the  satisfac- 
tion of  the  former  conditions,  as  we  have  seen,  the  satisfac- 
tion of  the  latter,  thus  adding  to  the  complexity  of  the 
problem. 

We  can  not  stop  to  discuss  this  aspect  of  the  question 
further.  We  have  succeeded  in  our  purpose  if  we  have  made 
clear  that  taxation  and  economics  are  most  intimately  re- 
lated, and  have  made  clear  the  importance,  and,  at  the  same 
time,  the  difficulty  of  the  question  involved.  For  it  has  been 
shown  that,  indispensable  as  they  are,  taxes  may  be  so  levied 
as  to  work  most  injurious  and  unjust  results  upon  produc- 
tion, distribution  and  consumption  through  the  operation  of 
economic  laws,  thus  materially  afifecting  human  well-being. 
We  have  seen,  also,  that  the  whole  question  revolves  about 
the  problem  of  shifting  and  incidence  in  taxation,  which,  as 
we  have  seen,  is  determined  by  the  operation  of  the  phe- 
nomenon of  price,  which  itself  is  objectively  determined  by 
the  law  of  demand  and  supply  and  subjectively  by  the  law 
of  marginal  utility.  It  is,  then,  to  these  economic  influences 
and  economic  results  that  the  statesman  should  give  careful 
attention  if  justice  is  to  be  an  aim  in  taxation.  But  while 
very  definite  conclusions  may  not  be  possible,  Professor 
Seligman  has  shown  that  substantial  results  may  be  obtained 


6S  JUSTICE  IN  TAXATION  [404 

as  a  guidance  in  legislation.'  Without  such  observance  of 
economic  laws,  conditions  and  results  the  first  requirements 
of  ethical  taxation  are  put  to  naught. 

III.  Taxation  and  Ethics 

Important  as  is  a  knowledge  of  economic  laws  and  forces 
in  questions  of  taxation,  this  knowledge  will  not  of  itself  de- 
termine the  true  principles  on  which  taxes  should  be  based. 
From  such  knowledge  we  may  learn  the  economic  results  of 
kinds  and  systems  of  taxes,  but  nothing  at  all  of  principles, 
that  is,  of  ethical  principles.  Actual  results  tell  of  condi- 
tions as  they  are ;  ethical  principles  of  conditions  as  they 
should  be.  Yet,  without  a  knowledge  of  the  former  it  would 
not  be  possible  to  prescribe  the  latter.  Actual  economic 
results  have  also  the  further  significance  that  they  indicate 
the  extent  to  which  the  ideal,  contained  in  the  principle,  is 
realized.  They  are  at  once,  therefore,  a  manifestation  and  a 
guide.  It  is,  however,  the  ethical  principle  that  is  of  real 
primary  importance ;  for  the  ethical  principle  is  the  funda- 
mental principle  of  taxation,  as  the  ethical  basis  (as  we  shall 
have  occasion  to  see)  is  the  ultimate  basis. 

In  thus  insisting  upon  the  paramountcy  of  ethical  princi- 
ples in  taxation,  that  the  ends  of  justice  can  not  be  attained 
by  the  mere  play  of  economic  forces,  I  am  aware  of  running 
counter  to  a  theory,  implied  in  the  doctrines  of  the  classical 
economists,  and  expressly  championed  by  Sax  and  his 
school.'  For  according  to  Sax,  at  least,  economic  laws  are 
but  the  expression  of  the  process  of  the  realization  of  justice  ; 
or,  justice  is  simply  the  realization  of  economic  laws,  par- 
ticularly of  the  subjective  law  of  marginal  utility.  In  eco- 
nomic laws  are  found  the  alpha  and  omega  of  justice  in  tax- 
ation.    Yet  justice  is  not  to  be  directly  aimed  at,  for,  so  we 

'  See,  Shifting  and  Incidence  of  Taxation,  ch.  viji. 

*  Cf.  Sax,  GrundUgungf  83,  and  Ricca-Salerno,  op.  cit.,  bk.  ii,  ch.  vi. 


405]  TAXATION,  ECONOMICS  AND  ETHICS  69 

are  told,  ethics  has  no  place  in  public  finance.  So  far  as 
public  finance  is  concerned  ethical  ends  are  a  consequence, 
not  an  aim.' 

To  this  doctrine  two  important  objections  may  be  opposed  : 
It  rests  upon  the  false  Hedonistic  assumption  that  pleasure 
is  the  highest  Good  ;  it  assumes  that  economic  motives  and 
ends  are  one  and  the  same  as  ethical  motives  and  ends. 
That  the  highest  Good, — the  ethical  end, — is  not  pleasure,  it 
is  not  our  place  to  demonstrate  here;^  but  it  must  be  ad- 
mitted that  it  is  not  consonant  with  a  theory  that  makes  the 
ultimate  end  of  the  state  the  realization,  or  perfection  of  man. 
Pleasure  (in  the  sense  of  satisfaction,  happiness — Aristotle's 
Eudaemonia'^ — not  Hedonistic  pleasure)  is  an  accompani- 
ment, a  necessary  incident,  if  you  will,  but  is  not  itself  the 
end.*  Hence  economic  pleasure,  as  such,  is  by  no  means 
necessarily  identical  with 'ethical  ends.  Whether  or  not  it 
is  so,  depends  upon  the  idea  of  the  Good  whose  realization 
is  sought. 

However  closely  related,  therefore,  economics  and  ethics 
may  be  in  certain  phases  of  taxation,  ethical  motives  and 
ends  are  entirely  distinct  from  economic  motives  and  ends. 
Purely  economic  motives  are  founded  upon  the  idea  of  a 
selfish  pleasure  of  a  more  or  less  material  character,  whose 
realization  is  the  economic  end.  Ethical  motives,  on  the 
contrary,  are  founded  upon  the  idea  of  a  Good  of  a  spiritual 
character — the  fulfilment  of  the  possibilities  of  our  nature. 
It  is  not  a  selfish  Good,  for  it  is  recognized  as  the  "good" 
of  others  as  well  as  for  the  self.     Its  realization  is  the  ethical 

'  This  is  also  implied  throughout  by  Sax  in  spite  of  his  contention  to  the  con- 
trary. 

*See  Green,  Prolegomena,  bk.  iii,  ch.  i. 

*  Described  by  a  German  philosopher  as  "  the  culture,  the  all-sided  develop- 
ment of  all  human  faculties,  and  the  satisfaction  which  is  founded  thereon."  Cf. 
also  Paulsen,  System  of  Ethics,  p.  49. 

*  Cf.  Green,  Ibid.,  sees.  158  and  161. 


70  JUSTICE  IN  TAXATION  [406 

end,  which  involves  justice  in  the  relations  of  man  to  man, 
individually  and  collectively.  And  because  the  ethical  end 
is  the  highest  end  it  is  paramount  over  all  other  ends  ;  hence 
over  economic  ends,  and  thus,  also,  in  matters  of  taxation. 
We  can  not,  then,  admit  that  in  questions  of  taxation  eco- 
nomic self-interest  is  the  measure  of  the  individually  or  the 
socially  just,  however  dependent  our  notions  of  ethical  justice 
may  be  upon  economic  results. 

For  insisting  upon  an  essential  distinction  between  eco- 
nomics and  ethics,  and  that  the  question  of  taxation  is  funda- 
mentally an  ethical  question,  no  apology  is  needed.  The 
supremacy  of  the  ethical  element  is  the  only  logical  deduc- 
tion from  the  theory  of  the  state  and  the  individual  presented 
in  the  foregoing  chapter.  Indeed,  from  the  ethical  nature 
of  man  it  follows  of  necessity,  or  as  the  old  English  moral- 
ists'  would  say,  it  is  "according  to  the  reason  of  things," 
that  the  ethical  element  should  be  the  ruling  element  in  all 
social  relations  and  social  institutions.  In  fact,  it  is  true  of 
taxation,  and  of  the  thousand  and  one  social  questions  that 
■  are  agitating  the  world  to-day,  that  no  satisfactory  or  per- 
manent solution  is  possible  which  does  not  conform  to  an 
ethical  standard,  though  that  standard  pertains  directly  to 
economic  conditions.  That  is,  there  should  be  an  ethical 
standard  of  economic  conditions,  for  as  Mill  well  says  :  "The 
\first  thing  in  every  practical  discussion  should  be  to  know 
what  perfection  is.''^" 

If  we  are  at  all  correct  in  our  conclusion,  even  more  unten- 
able than  the  theory  of  Sax  is  the  position  maintained  by 
;  McCulloch:  That  since  perfect  equality  is  unattainable,  "in 
1  laying  down  a  practical  rule  that  is  to  apply  to  all  taxes, 
equality  of  contribution  is  of  inferior  consideration;"  and 
that,  "  It  is  the  business  of  the  legislator  to  look  at  the  prac- 
tical influence  of  different  taxes,  and  to  resort  by  preference 

^  Cudworth,  Clark  and  Price.        '  Political  Ecotiomy,  v.  2,  sec.  2. 


407]  TAXATION,  ECONOMICS  AND  ETHICS  71 

to  those  by  which  the  revenue  may  be  raised  with  the  small- 
est inconvenience."'  The  error  of  this  doctrine  is  not  so 
much  in  the  premise  as  in  the  conclusion.  For  the  doctrine 
erroneously  assumes  that  the  sa/us  populi,  which  is  held  to 
be  of  "prime  consideration,"  may  be  permanently  antagon- 
istic to  ethical  considerations ;  that  policy  and  justice  may 
be  permanently  opposed  to  each  other.  No,  the  truth  is 
with  Madame  Royer,  who  places  both  "  utility  and  just  ce 
above  the  narrow  consideration  of  policy ;  "  but  adds,  that 
if  "justice  is  at  variance  with  utility,  we  say  that  justice  is  I 
preferable."'  The  fact  is  that  there  can  be  no  true  social 
policy,  no  true  policy  in  any  of  the  social  relations  of  life, 
that  is  not  based  upon  ideas  of  justice.  Justice  is  the  foun- 
dation of  a  permanent  social  order,  and  a  permanent  social 
peace.  Only  upon  the  grounds  of  a  "policy"  best  known 
to  the  "  politician,"  or  through  want  of  a  wholesome  influence 
at  the  ballot  box  of  a  powerful  minority  (unless,  perchance, 
the  masses  are  soothed  by  ignorance,  lethargy,  or  hope- 
lessness) can  a  system  of  taxes  long  endure,  that  is  recog- 
nized by  all  competent  judges  as  full  of  injustice.  3 

Our  conclusion,  then,  is:  That  the  problem  of  taxation 
is  partly  economic  and  partly  (but  also  essentially)  ethical, 
the  two  elements  being  inseparably  related.     It  is  an  econ-  - 

'  McCulloch,  Taxation  and  Funding,  p.  18  (2d  Ed.)-  Cf.  also  Schmoller,  who 
opposes  to  the  principle  of  BeitragsfShigkeit,  the  principle :  "  Nimrn  wo  es  geht." 
Quoted  by  Meyer,  Die  Principien  der  gerechten  Besieuerung,  p.  128.  The  declar- 
ation of  Held,  that  "  the  practice  of  using  those  taxes  over  which  there  is  the 
least  complaint  is  the  wisest,"  is  not  an  acquiescence  with  McCulloch ;  for  with 
Held  justice  is  not  sacrificed  as  end,  or  opposed  to  policy.  On  the  contrary,  it  is 
policy  to  heed  the  "  complaint"  because  it  is  the  surest  (negative)  guide  to  the 
realization  of  justice,  the  surest  measure  "  fiir  die  Grosse  personlicher  Opfer." 
(^Einkontfnensteuer,  p.  115.) 

'■'  Theorie  de  Plmpot,  Introduction,  pp.  14-5. 

'As  note  the  tax  systems  in  many  of  the  American  Commonwealths  (See  Ely, 
Taxation  in  American  States  and  Cities,  and  Seligman,  "  The  General  Property 
Tax,"  in  Essays  in  Taxation). 


72  JUSTICE  IN  TAXATION  [408 

cmic  question  in  that  it  has  to  do  with  economic  goods,  con- 
ditions, and  relations ;  ethical,  in  that  it  has  to  do  with  man 
as  a  spiritual  and  ethical  entity,  at  once  an  end  in  himself, 
and  the  end  of  all  social  life.  Each  supplements  the  other. 
As  Bastable  says:  "The  important  problem  of  justice  in 
taxation  is  indeed  an  ethical  one,  but  until  its  economic 
effects  are  known  it  is  impossible  to  say  whether  any  given 
form  of  taxation  is  just  or  the  reverse."' 

In  insisting  so  strongly  upon  the  ethical  character  of  tax- 
ation no  pretension  is  made  that  absolute  justice  is  attain- 
able. In  human  affairs  only  relative  justice  is  possible.  But 
we  can  not  reach  the  highest  approximate  to  justice  without 
first  knowing,  as  Mill  says,  what  perfection  is,  and  the  "high- 
est approximate"  is  all  that  can  be  desired. 

But  the  problem  of  taxation  is  something  more  than  an 
economic  and  an  ethical  one ;  it  is  also  political.  For  our 
conception  of  the  justice  in  taxation  is  quite  as  dependent 
upon  our  conception  of  the  nature  of  the  state  and  of  the 
functions  of  government,  as  it  is  upon  economic  results.' 
But  the  political  conceptions,  like  the  desired  economic  re- 
sults, are  relative  to  ideals  of  justice. 

We  may  therefore  consider  taxation  as  having  three  bases 
— political,  economic,  and  ethical — which  though  distinct 
are  inseparably  related.  Upon  our  conception  of  these 
bases,  and  of  their  relative  importance,  must  our  principles 
of  taxation  be  determined.  Sometimes  the  one  and  some- 
times the  other  is  assumed  as  the  only  basis,  with  a  conse- 
quent narrowness  of  views  and  one-sidedness  of  conclusions. 
They  must  be  considered  in  their  mutual  relation  and  mutual 
dependence.  We  shall  consider  these  bases  somewhat  his- 
torically and  critically  in  the  three  following  chapters. 

'  Public  Finance,  p.  9.     Cf.  also  p.  273. 

*  La  justice  dans  1'  impot  est  une  conception  extr^mement  difficile  ^  formuler 
parce  qu'  elle  depend  de  1'  idee  qu'  on  se  fait  des  droits  et  des  devoirs  des 
gouvernements.     Leon  Say,  La  question  des  impots,  p.  66. 


CHAPTER  IV. 

THE  POLITICAL  BASIS  AND  PRINCIPLES  OF  TAXATION 

As  we  have  seen  in  the  previous  chapter,  taxation  is  a 
contribution  from  the  private  property  of  the  individual  for 
the  support  of  the  government — for  the  satisfaction  of  a 
common  need.  It  arises  out  of  the  nature  of  the  state,  the 
necessity  of  government,  and  the  prevailing  system  of  pri- 
vate economy.  It  was  further  shown  that  the  tax  may  be 
regarded  as  voluntary  or  compulsory  according  to  the  point 
of  view  in  question ;  that  it  is  influenced  by  economic  con- 
ditions and  involves  economic  results ;  and  that  above  all, 
taxation  is  a  supremely  ethical  question  which  must  be  de- 
termined by  ethical  standards  and  in  conformity  to  ethical 
ideals. 

Now  these  three  phases  —the  political,  the  economic,  and 
the  ethical — are  not  separate,  but  are  inseparable  phases  of 
the  problem  of  taxation.  They  nevertheless  afford  distinct 
bases  of  taxation — bases,  however,  that  lead  to  false  results 
if  taken  in  their  isolation  and  not  regarded  in  their  in- 
terdependence and  unity.  The  primary  basis  is  the  polit- 
ical basis,  since  the  whole  problem  grows  out  of  the  relation 
of  the  individual  to  the  state.  But  since  economic  goods 
are  necessarily  involved,  and  so  the  economic  relations  of 
the  individual  to  the  state,  there  is,  following  the  political 
basis  and  inseparable  from  it,  an  economic  basis.  And 
finally,  because  of  the  ethical  character  of  the  taxable  sub- 
ject, and  of  the  ethical  character  of  all  social  relations,  there 
must  be  an  ethical  basis  which  must  act  as  a  guiding  norm 
in  the  determination  of  the  principles  that  should  control 
409]  73 


74  JUSTICE  IN  TAXATION  [410 

taxation ;  since  because  of  the  supremely  ethical  character 
of  the  problem,  the  highest  demand  is  the  attainment  of 
justice. 

By  the  '  political  basis '  of  taxation  is  understood  that 
basis  which  rests  upon  a  definite  theory  of  the  state,  and 
from  which  certain  principles  of  taxation  may  be  deduced ; 
or  it  is  the  determination  of  principles  of  taxation  in  accord- 
ance with  an  accepted  theory  of  the  state,  or  is  the  logical 
outcome  of  such  a  theory.  Hence  the  possibility  of  a  wide 
range  of  principles,  varying  from  those  of  the  extreme  indi- 
vidualist to  those  of  the  extreme  socialist.  These  we  can 
not  attempt  to  consider  in  any  detail,  but  must  confine  our- 
selves to  a  few  of  the  more  important  theories — those  that 
have  the  greatest  influence,  either  theoretical  or  practical. 
Such  are :  the  contract  theory,  the  evolution  theory,  the 
utilitarian  theory,  and  the  social  theories  (as  anarchism, 
communism  and  socialism). 

Now  in  examining  these  views  of  the  principles  of  tax- 
ation, as  related  to  and  dependent  upon  a  theory  of  the 
state,  two  things  must  be  constantly  kept  in  mind  :  The 
deductions  made  by  the  advocates  of  a  given  theory,  and 
the  logical  deductions  of  that  theory.  It  is  also  important 
to  note  whether  the  question  is  viewed  in  its  entirety,  or 
whether  the  political  basis  is  regarded  as  the  only  basis. 
Before,  however,  discussing  the  theories  mentioned  we  may 
mention  briefly  previous  conceptions  of  the  state  and 
taxation. 

In  the  time  of  Plato  and  Aristotle  little  was  known  or 
thought  regarding  principles  of  taxation,  though  both  Plato 
and  Aristotle  elaborated  a  theory  of  the  state.  Had  they 
attempted,  however,  to  determine  principles  of  taxation  from 
their  theories  of  the  state,  it  is  certain  that  they  would  have 
sought  principles  consistent  with  the  highest  development 
of   the    individual.       The    principles   of    Plato    would    have 


411  POLITICAL  BASIS  AND  PRINCIPLES  75 

looked  towards  the  attainment  of  ideal  justice,  while  those  of 
Aristotle  would  have  been  adjusted  to  a  '  mean  '  capable  of 
realizing  an  approximation  to  justice.  But  with  both,  ethical 
results,  as  they  saw  them,  would  have  stood  in  the  fore- 
ground, since  they  saw  in  the  state  the  proximate,  and  in 
the  individual  the  ultimate,  good.'  And  yet  with  neither 
Plato  nor  Aristotle  would  the  laws  of  'universality'  and 
'  equality'  apply  to  all  members  of  the  commonwealth.  For 
with  Plato  the  burdens  of  the  industrial  life,  and  so  the 
burden  of  supporting  the  government,  would  fall  upon  the 
working  classes,  the  "  husbandmen ;  "  while  with  Aristotle 
the  same  burdens  would  fall  upon  those  destined  "  by 
nature"  to  be  slaves. 

The  Roman  idea  of  the  state  and  government  likewise 
precluded  it  from  forming  a  basis  for  principles  of  taxation. 
The  large  dependence  of  the  government  upon  booty;  and. 
tr^butefor^its  ^U£pojtjJogether  with  the  exempdoiLoL-the 
patrician — the  governing — class^frotn  the  tax  burden^  pre- 
vented taxat[on  from  becoming  a  serious  problem  whose 
principles  needed  investigation  and  determination. 

Coming  down  to  medieval  society  and  to  medieval 
thought,  we  find  new  conceptions  of  the  state  and  more  defi- 
nite ideas  concerning  taxation.  The  system  by  which  indi- 
viduals gave  up  their  persons  and  property  to  lesser  lords 
fdr^grotection,  and  these,  in  turn,  their  persons  and  property 
to  the  higher  nobility,  and  "the  higher  nobility  to  roy^alty ; 
the  system  of  sub-infeudation ;  and,  indeed,  the  whole  feudal 
system,  inculcated  the  idea  of  the  dependence  of  the  indi- 
vidual upon  higher  political  power,  and  so  made  protection 

'  However  true  it  may  be  that  the  Greek  subordinated  the  individual  to,  the 
state,  I  do  not  beHeve  that  any  such  doctrine  can  be  found,  by  any  consistent  in- 
terpretation, in  the  philosophy  of  Plato  or  Aristotle,  as  is  so  often  assumed.  With 
both,  the  State  was  only  a  means  for  the  fullest  development  of  the  "golden 
nature  "  of  the  individual. 


-^^  JUSTICE  IN  TAXATION  [412 

a  dominant  idea  of  the  social  and  political  structure  of 
society.  For  this  protection  personal  service  was  performed. 
Hence,  as  the  feudal  society  gradually  gave  way  to  the 
"  status  of  contract,"  and  personal  service  to  taxation,  it  was 
only  natural  that  taxation  should  have  been  looked  upon  as 
a  payment  for  the  protection  received  from  the  government. 
The  tax  was  simply  a  payment  to  the  government  of  the 
costs  of  its  service  of  protection.  It  was  the  '  cojt-of-ser- 
vice '  theoryLof  taxation.  This  theory,  however,  soon  gave 
way,  at  least  in  part,  to  the  '  value-of-service '  theory — a 
theory  that  measures  taxation  by  the  value  of  the  service  of 
protection,  instead  of  the  cost  of  that  protection.  The 
value  of  the  protection  was  then  conceived  to  be  dependent 
upon  the  amount  of  the  property  protected,  the  protection 
of  the  person  being  apparently  regarded  as  a  negligible 
quantity.  A  tax,  therefore,  proportioned  to_one's  property 
would  be  proportionate  to  the  value  of  th^service  that  he 
had  rec^ii^ed.  But  amount  of  property  protected  was 
very  early  regarded  as  the  measure  of  one's  economic 
ability,  or  '  faculty,''  and  so  of  one's  ability  to  pay  taxes. 
Though  'faculty'  might  be  considered  as  only  another  as- 
pect of  the  '  value-of-service '  principle,  the  {diCn\\.y—facultas 
— of  the  individual  to  pay  taxes  was  early  laid  down  as  a 
distinct  measure,  or  canon,  of  taxation. =  It  was  largely  out 
of  these  conditions  that  grew  the  conception  of  the  '  social 
contract '  and  the  theory  of  taxation  that  evolved  from  it. 

I.    The  Social  Contract  and  Taxation 

At  the  same  time  that  historical  conditions  were  lending 
much  force  to  the  conception  of  society  as  founded  upon  a 
contract,  there  was  gradually  developing  out  of  the  old  Stoic 
conception  of  a  "  law  of  nature,"  though  with  considerable 

'  Cicero  somewhere  identifies  faculty  with  property. 
*  Cf.  Seligman,  Progressive  Taxation,  p.  127. 


413]  POLITICAL  BASIS  AND  PRINCIPLES  77 

transformation  of  ideas,  a  theory  of  a  "  social  compact "  as 
a  complete  explanation  of  the  origin  and  nature  of  the  state. 
Although  this  theory  is  now  universally  repudiated  by  econ- 
omists and  political  scientists,  no  theory  of  the  state  has 
exerted  a  wider  or  deeper  influence,  theoretical  and  practi- 
cal, in  the  fields  of  politics,  economics  and  finance,  partic- 
ularly in  England,  France  and  the  United  States.  The 
contract  theory  had,  for  example,  a  great  influence  upon 
JefTerson  and  the  founders  of  our  Republic,  and  has  also 
given  color  to  much  subsequent  legislation,'  while  its  as- 
sumptions are  to-day  among  the  most  commonly  accepted 
doctrines  of  lawyers,  statesmen,  and  the  general  public, 
especially  in  matters  of  taxation.^ 

I.  The  Political  Philosophers.  The  theory  of  the  Social 
Contract  has  received  its  fullest  development  in  the  writings 
of  Hobbes,3  Locke,*  and  Rousseau, ^  although  the  doctrine 
is  older  than  the  Leviathan.^  The  theory  is  so  generally 
understood  that  it  is  not  necessary  to  enter  into  a  detailed 
account  of  it.  In  brief  it  is  this :  Prior  to  the  existence  of 
civic  society  mankind  lived  in  a  "  state  of  nature,"  accord- 
ing to  Hobbes  in  an  un-social,  even  anti-social,  "  state  of 
war,"  but  with  Locke  and  Rousseau  under  more  or  less 
social  conditions.  In  the  course  of  time  the  individuals 
composing  the  non-civic  society  became,  as  it  were,  sud- 
denly conscious  of  the  fact  that  their  happiness  and  well- 
being  would  be  furthered  if  they  would  organize  themselves 
into  a  body  politic  and  choose  a  common  arbiter,  or  arbiters, 

'  Cf.  for  example,  speech  of  Da\Wi,  Annals  of  Congress,  i4thC.,  istSes.,  p.  1681. 

*  Cf.  Cooley,  Law  of  Taxation.     Also  second  message  of  Gov.  Black  of  New 
York  (1896),  and  newspapers  at  the  time  of  the  Income  Tax  decisions  in  1893. 

*  Leviathan,  De  Ccrpore  Politico  and  Philosophical  Rudiments. 

*  Civil  Government. 

*  Social  Contract. 

•See  Grotius,  De  Jure  Belli  et  Pads.     Also,  Sidgwick,  History  of  Ethics,  pp. 
157-160. 


78  JUSTICE  IN  TAXATION  [414 

for  settling  all  such  disputes  as  are  constantly  arising  in  a 
state  of  nature,  and  for  common  defense  against  all  attacks 
upon  life  and  property;  thus  converting  the  '  natural  right' 
of  the  self-defense  of  one's  person  and  property  into  the 
right  of  a  legal  protection  guaranteed  by  the  people  as  an 
organized  whole. 

As  the  theory  is  developed  in  detail  there  are  considerable 
differences  among  the  writers  mentioned,  though  for  our  pur- 
pose most  of  them  are  unessential.  We  may  mention,  how- 
ever, that  with  Hobbes  the  purpose  of  the  compact  was  to 
avoid  a  state  of  "waiijof  all  against  a41 "  that  prevails  in  the 
state  of  nature ;  that  with  Locke  it  was  to  avoid  the  "  incQUr 
venjejices"  that  naturally  arise  in  settling  any  disputes  where 
there  is  not  a  common  arbiter  to  decide  differences;  while 
with  Rousseau  the  compact  was  rather  a  convenient  hypoth- 
esis for  picturing  the  conditions  of  an  ideal  society.  Rous- 
seau, indeed,  had  little  concern  for  the  past,  but  believing 
man  to  be  born  free  but  everywhere  in  chains,'  he  sought,  like 
Plato,  to  discover  the  nature  of  the  ideal  state  where  liberty 
and  justice  might  be  realized.^  And  the  basis  of  such  a 
state  he  found  in  the  idea  of  a  'contract.'  There  is  also  a 
difference  with  respect  to  the  location  of  sovereignty,  and  to 
the  character  of  the  protection.  Hobbes  emphasized  the 
protection  of  life,  Locke  the  protection  of  pxaperty,  and 
Rousseau  the  liberty  that  is  conditioned  by  the  protection 
of  both.  But  the  more  important  fact  is,  that  with  all  alike 
the  idea  of  a  contract  best  expresses  the  nature  of  the  state ; 
that,  further,  the  state  originated  in  the  necessity  of  protec- 
tion, or,  at  least,  has  as  its  function  the  protection  of  the 
lives  and  property  of  its  citizens. 

It  is  unnecessary  to  enter  into  a  criticism  of  a  theory  now 
so  universally  repudiated  by  philosophers  and  political  sci- 
entists, although  the  fiction  is  still  kept  up  in  much  legal 

'  Cf.  Social  Contract,  ch.  I.  ^  Ibid.,  Introduction. 


415]  POLITICAL  BASIS  AND  PRINCIPLES  79 

writing.  We  would  simply  refer  to  the  facts :  That  it  rests 
upon  no  historical  foundation;  that  it  falsely  assumes  the 
relation  of  the  individual  to  the  state  to  be  of  the  nature  of 
a  contract ;  that  it  makes  mechanical  and  statical  what  is 
spiritual  and  dynamic,  formal  what  is  vital,  external  what  is 
internal.  On  the  other  hand,  the  criticism  of  Professor 
Burgess,  that  the  theory  assumes  a  logical  contradiction, 
since  the  state  must  exist  before  there,  could  be  a  contrai;.t,' 
seems  to  us  little  more  than  a  technical  point  of  law,  as  by 
the  'contract'  was  evidently  meant  nothing  more  than  a 
covenant,  similar  to  that  of  the  Scottish  Covenanters,  or  of 
the  Pilgrims  in  the  Mayflower. 

Assuming,  then,  the  theory  as  understood  by  its  promul- 
gators, what  is  the  theory  of  taxation  based  upon  it?     If  its 
theory  of  taxation  depended  upon  its  theory  of  a  contract 
we  might  dismiss  it  with  the  statement:     That  since  no  such 
contract  ever  existed,  nor,  in  fact,  expresses  the  true  relation 
of  the  individual  to  the  state,  it  can  not  form  the  basis  of  the 
rights  and  obligations  of  citizens  in  matters  of  taxation.    But 
as  a  matter  of  fact  the  idea  of  a  contract  forms  no  part  of 
the  theory  of  taxation  of  the  Contract  theorists.    With  them 
the  basis  of  both — of  the  state  and  of  taxation — was  found 
in  the  idea  of  protection.     For  this  reason  their  theory  of  - 
taxation,  most  fully  developed  by  Hobbes,  deserves  more 
careful  consideration,  since  protection  is  unquestionably  an  \ 
important  factor  both  in  the  conception  of  the  state  and  in  \ 
that  of  taxation. 

That  the  basis  of  taxation  is  found  in  the  protection  that 
the  citizen   receives  from  the  state  is  most  clearly  brought 
out  by  Hobbes.     Taxes,  he  says,  "  are  nothing  else  but  the 
wages  due  to  themwho  hold  the  sword  to  defend   private_| 
men  .Lg,  tjie^exercise  of  their  several   trades  and   callings^"/ 
Moreover,  since  the  benefit  that  every  one  receives  from  this 

1  Burgess,  Op.  cil..  Vol.  I,  p.  62. 


8o  JUSTICE  IN  TAXATION  [416 

protection  "  is  the  enjoyment  of  life,  which  is  equally  dear 
to  poor  and  rich,  the  debt  which  a  poor  man  oweth  them 
that  defend  his  life,  is  the  same  which  a  rich  man  oweth 
for  the  defense  of  his."'  But  this  equality  of  taxation  does 
not  mean,  however,  an  absolute  equality,  for  the  benefit  of 
the  protection  is  the  "enjoyment  of  life"  as  measured  by 
material  consumption ;  and  hence  taxes  should  be  based 
upon  what  one  "  spendeth,"  or  consumes,  by  which  *'  every 
man  payeth  equally  for  what  he  useth."'  Similarly  in  the 
Politics :  "  The  burdens  of  the  commonwealth  being  the 
price  that  we  pay  for  the  benefits  thereof,  they  ought  to  be 
measured  thereby."  And  since  this  benefit  is  the  equal 
enjoyment  of  the  peace  and  liberty  to  use  our  industry  to 
get  our  living,  we  should  contribute  equally  to  the  common 
charge,  not  as  measured  by  the  results  of  our  industry,  but 
by  our  consumption.  "  That  seemeth  therefore  to  be  the 
most  equal  way  of  dividing  the  burden  of  public  charge, 
when  every  man  shall  contribute  according  to  what  he 
spendeth,  and  not  according  to  what  he  gets."  3  Again  in 
the  Philosophical  Rudiments  it  is  declared,  that  taxes  being 
"  nothing  else^ut  the  price  of  bought_peac£,_it  is  good  rea- 
son that  they  who  equally  shai:e_ln__the__p£ace,  shjould  also^ 
pay  in  equal  j)art."  ♦ 

In  brief,  the  position  of  Hobbes  is  this :  The  purpose  of 
the  state  is  the  protection  of  the  life  of  the  individual  that 
he  may  enjoy  the  peaceful  pursuit  of  a  living,  and  the  indi- 
vidual should  pay  for  the  expense  of  this  protection ;  the 
tax,  which  is  the  price  of  this  'bought  peace,'  should  there- 
fore be  based  upon  the  benefits  derived  from  this  protection  ; 
»  and    since   the  value  of  this  benefit  is  determined  by  the 

^Leviathan,   Part  II,  Ch.  30,  p.  30.     (All   references  to   Hobbes  are  from 
Moleswortb's  edition.) 

'  Ibid.  '  De  Corpore  Politico,  Part  II,  pp.  216-7. 

*  PhiUiophical  Rudiments,  p.  1 73. 


417]  POLITICAL  BASIS  AND  PRINCIPLES  8 1 

amount  of  the  enjoyment,  which  is  itself  measured  by  the 
amount  that  one  enjoys  in  the  way  of  consumption  under 
the  protection  of  the  state,  the  tax  should  be  based  upon 
the  consumption  of  the  individual;  and  since  all  equally 
enjoy  the  benefits  of  protection,  as  thus  measured  by  con- 
sumption, all  should  bear  equally  the  burden  of  taxation 
according  to  their  enjoyment  of  consumptive  goods,  that  is, 
in  proportion  to  their  consumption^  And  that  this  principle 
should  govern  the  distribution ~6i  taxes  is  in  accordance 
with  the  'natural  law.'  "Rulers,"  says  Hobbes,  "are  hy_ 
thejnatural_law_obHged_toJay  the  burden  of  the  comnion- 
wealth  equally  on  thejr  subjects.  Now  in  this  place  we 
understand  an  equality,  not  of  money,  but  of  burden,  that 
is  to  say,  an  equality  of  reason  [proportion]  between  the 
burdens  and  the  benefits.  For  although  all  equally  enjoy 
peace,  yet  the  benefits  springing  from  thence  are  not  equal 
to  all,"'  because  of  differences  in  consumption,  which  is  the 
true  measure  of  benefits.  That  is,  the  cost  of  protection 
should  be  distributed  among  those  receiving  the  protection 
in  proportion  to  its  value  to  them,  or  in  proportion  to  the 
value  of  the  benefits  of  protection,  which  is  the  quantity  of 
consumption. 

Are  these  conclusions  of  Hobbes  a  logical  consequence  of 
his  fundamental  premise,  or  the  logical  outcome  of  his  con- 
ception of  the  state?     Or,  again,  does  the  theory  of  Hobbes  j 
give  us  a  satisfactory  principle  of  taxation,  grounded   upon  \ 
a  sufficient  and  satisfactory  basis?     Both  questions,  we  be-  ! 
lieve,  must  be  answered  in  the  negative.     Forj  with  regpect, 
to  the  first^  if  protection  is  the  sole.pjjrpose  for  which  polit- 
ical^ s.ocjety  exists, Jthen   the  cost  of  that  protection  is  the 
logical  basis ^oi  taxation,  but  such  a  basis  of  tax  distribution 
is  a  practically  impossible  basis.     Or,  if  the  tax  be  consid- 
ered to  be  paid  for  the  benefits  of  the  protection,  not  for  the 

'  Philosophical  Rudiments,  p.  1 79. 


82  JUSTICE  IN  TAXATION  [418 

protection  itself,  then  the  value  of  those  benefits  would  seem 
to  be  the  true  basis  for  the  distribution  of  the  tax  burden. 
But,  again,  this  is  an  impossible  basis,  for  the  value  of  these 
benefits  is  an  incalculable  quantity,  since  the  protection  upon 
which  they  rest  is  the  foundation  of  our  whole  civilization 
and  of  all  the  benefits  derived  therefrom.  But  since  a  tax 
can  not  equal  the  benefits  let  us  concede  that  it  should 
be  in  proportion  to  benefits ;  that  is,  the  share  of  each  should 
be  such  a  proportion  of  the  total  expense,  as  the  benefits 
that  he  derives  from  the  protection  are  to  the  total  benefits. 
But  this,  again,  is  not  a  calculable  quantity.  Hobbes,  how- 
ever, gets  around  the  difficulty  by  first  assuming  that  the 
benefits  consist  in  the  peaceful  pursuit  of  "  our  trades  and 
callings,"  and  then  illogically  concluding  that  the  benefits 
are  measured  by  what  we  consume  rather  than  by  what  we 
produce.  In  brief  there  is  no  logical  connection  between 
Hobbes'  theory  of  protection  and  his  theory  of  consumption 
as  the  basis  of  taxation.  Nor  is  Hobbes  more  satisfactory 
in  his  assumption  of  benefits  as  the  true  principle  of  taxa- 
tion. Even  if  we  concede  that,  in  a  sense,  the  theory  of 
benefits  is  a  logical  deduction  from  the  theory  of  protection 
we  maintain,  and  shall  presently  show,  that  the  theory  of 
protection  is  wholly  inadequate,  as  it  expresses  at  best  only 
a  half  truth.  On  the  other  hand  the  theory  of  benefits  as 
understood  by  Hobbes  is  equally  inadequate,  since  it  ex- 
presses even  less  than  a  half  truth.  It  is  a  grossly  inade- 
quate conception  of  the  state  that  conceives  its  benefits  to 
be  limited  to  the  power  of  peaceful  industry,  or  to  the  per- 
sonal consumption  of  economic  goods.  The  benefits  of 
government  are  manifold  and  are  not  to  be  limited  to  the 
enjoyments  derived  from  the  consumption  of  material  goods. 
And  the  tax  must  include  the  whole  range  of  enjoyments. 
Further,  the  theory  of  benefits  is  a  false  and  impossible 
principle  for  taxation;  false, because  it  assumes  an  erroneous 


419]  POLITICAL  BASIS  AND  PRINCIPLES  83 

conception  of  the  relation  to  the  state  as  the  basis  of  taxa- 
tion ;  impossible,  because  the  benefits  that  are  supposed  to 
form  the  basis  of  the  distribution  of  taxes  are  in'no  way> 
calculable  quantity. 

Not  only,  therefore,  does  Hobbes  commit  the  double  error 
of  assuming  benefits  as  the  true  measure  of  taxation,  and 
that  these  benefits  are  proportioned  to  our  consumption  of 
economic  goods,  but  his  theory  altogether  ignores  the  moral 
element  that  is  involved  in  the  relations  of  individuals  to 
each  other  in  society  or  the  state,  and  hence  he  expressly 
repudiates  the  principle  that  proportions  taxation  to  ability.' 
Hobbes  finds  the  justice  of  his  principle  solely  in  the  assump- 
tion that  our  benefits  are  proportioned  to  our  individual 
economic  consumption.  And  he  finds  corroboration  for 
his  principle  in  that  it  conforms  to  the  most  expedient. 
A  tax  proportioned  to  consumption,  he  says,  "  seemeth  not 
only  most  equal,  but  also  least  sensible,  and  least  to  trouble 
the  mind  of  them  that  bear  it."  ^ 

Turning  from  Hobbes  to  Locke  and  Rousseau,  we  find 
that  they  gave  little  attention  to  the  problem  of  taxation. 
Yet  Locke  expressly  bases  taxation  upon  protection  and 
intimates  that  it  should  be  proportioned  to  its  cost,  though 
it  must  be  admitted  that  his  statement  on  the  latter  point  is 
not  very  clear.  "  'Tis  true,"  he  says,  "  government  cannot 
be  supported  without  great  charge,  and  it  is  fit  every  one 
who  enjoys  a  share  of  protection  should  pay  out  of  his  estate  < 
his  proportion  for  the  maintenance  of  it."  ^  This  is  practi- ' 
cally  all  that  Locke  has  to  say  on  the  subject,  so  that  we  are 
left  in  doubt  how  the  proportionate  share  of  each  in  the  tax 
burden  is  to  be  determined.  But  it  suffices  for  our  present 
purpose  that  the  principle  of  taxation  is  based  upon  pro- 
tection, each  sharing  his  proportion  of  the  cost. 

It  is  interesting  to  note,  however,  that  Locke  emphasizes 

*  Cf.  De  Cor  pore  Politico,  p.  216.  '  Ibid.,  p.  217. 

*  Civil  Government,  sec.  140. 


84  JUSTICE  IN  TAXATION  [420 

the  importance  of  free  consent  in  the  payment  of  taxes,  i.  e., 
consent  of  the  majority — since  arbitrary  taxation  "  invades 
the  fundamental  law  of  property,  and  subverts  the  end  of 
government."  This  is  not  only  an  emphasis  upon  the  moral 
obligation  to  pay  our  share  of  the  cost  of  our  protection, 
but  it  follows  from  Locke's  theory  of  civil  government  and 
from  his  theory  of  property.'  Yet  Locke,  himself,  makes 
this  moral  obligation  stand  for  naught  by  his  theory  that 
the  ultimate  incidence  of  all  taxes  is,  by  the  inevitable 
workings  of  economic  laws,  upon  land ;  since  the  merchant 
will  not  and  the  laborer  cannot  pay  the  taxes.  "  It  is  in 
vain,"  says  Locke,  "  in  a  country  whose  great  fund  is  land, 
to  hope  to  lay  the  pubUc  charge  of  the  government  on  any- 
thing else ;  there  at  last  it  will  terminate.  The  merchant 
(do  what  you  can)  will  not  bear  it,  the  laborer  cannot,  and 
therefore  the  landlord  must."'  The  merchant  "will  not," 
because  he  can  shift  it  by  raising  the  price ;  the  laborer 
"  cannot,"  "  for  he  just  lives  from  hand  to  mouth. "3  Thus, 
the  position  of  Locke  amounts  to  this :  We  are  all  in  duty 
bound  to  pay  our  share  of  the  cost  of  the  protection  of  gov- 
ernment, yet  the  large  merchant  class  will  not,  since  economic 
laws  enable  them  to  shift  the  burden,  and  the  large  laboring 
class  cannot,  because  they  are  already  at  the  minimum  of 
subsistence.  That  is,  economic  laws  and  conditions  stand 
in  opposition  to  the  moral  law,  thus  compelling  one  class  in 
society — the  landlords — to  bear  the  burdens  of  the  rest. 
The  theory  as  a  whole,  then,  is  inconsistent  with  itself,  but 
the  fault  here  is  with  the  theory  of  incidence  rather  than 
with  the  theory  of  protection. 

Finally,  in  the  case  of  Rousseau,  we  find  no  attempt  to 
develop  a  theory  of  taxation  based  upon  his  theory  of  a 

*  Civil  Government,  ch.  5. 

*  Interest,  p.  60  (Works,  Vol.  IV,  Edition  1824).      Cf.  also  p.  57. 
■  Ibid.,  p.  57. 


42  I  ]  POLITICAL  BASIS  AND  PRINCIPLES  85 

social  contract.  Yet  out  of  Rousseau's  theory  of  *  liberty 
and  equality,'  which  he  made  the  mainspring  of  the  contract, 
theories  of  society  and  taxation  were  developed,  mainly  by 
the  French  communists  at  the  end  of  the  eighteenth  century, 
such  as  Baboeuf  and  Morelly.  But  as  these  theories  were 
communistic  in  character  we  shall  postpone  their  considera- 
tion until  we  take  up  the  question  of  Social  Theories  and 
Taxation. 

2.  The  Protection  Theory  of  Taxation.  Our  preceding  dis- 
cussion has  shown  that  the  contract  theorists  based  their 
principles  of  taxation  solely  upon  the  idea  of  protection. 
This  doctrine  we  have  also  found  to  be  contained  in  much 
legal  thinking,  as  in  the  popular  mind,  and  it  is  also  found 
in  a  certain  school  of  economists.  Because,  then,  of  its  his- 
torical and  practical  importance  it  may  be  well  to  examine 
separately,  though  briefly,  both  the  merits  and  the  demerits 
of  the  doctrine,  its  truths  and  its  limitations. 

In  discussing  the  protection  theory  of  taxation  we  should 
carefully  distinguish  it  from  the  similar  economic  theory, 
better  known  as  the  give-and-take,  or  the  quid  pro  quo, 
theory  of  taxation.  The  latter  will  come  up  for  discussion 
in  the  following  chapter.  Here  we  are  concerned  only  with 
the  protection  theory  as  forming  the  political  foundation  of 
taxation  and  of  its  principles.  True,  the  kindred  economic 
theory  rests  upon  the  assumption  that  protection  constitutes 
the  true  political  basis  of  taxation,  but  it  views  the  relation- 
ship that  necessitates  taxation  more  from  the  economic 
point  of  view  and  deduces  its  principles  wholly  from  eco- 
nomic considerations,  or  from  economic  laws.  But  although 
there  is  a  clear  theoretical  distinction,  it  would  be  difficult  to 
find  any  treatment  of  the  subject  wholly  free  from  the  one 
or  the  other  point  of  view.  Nevertheless  we  shall  view  them 
separately,  though  recognizing  their  practical  inseparability. 

From  the  purely  political   point  of  view,  then,  I  would 


86  JUSTICE  IN  TAXATION  [422 

adduce  as  the  most  important  criticisms  of  the  protection 
theory:  That  its  fundamental  conception  is  inadequate; 
that  the  principles  deduced  are  not  consistent  with  its  logical 
deductions ;  that  it  sees  no  ethical  consideration  beyond  the 
obligation  of  each  to  pay  his  share  for  the  protection  that 
he  receives. 

I.  We  have  already  pointed  out  the  fact  that  this  theory 
is  based  upon  an  inadquate  conception  of  the  state,  and 
from  our  point  of  view  this  statement  finds  sufficient  proof 
in  the  theory  of  the  state  outlined  in  chapter  II.  If  we  are 
right  in  our  conception  of  the  state  the  protection  theory  is 
necessarily  inadequate.  It  expresses,  in  fact,  but  a  half- 
truth.  For  while  the  protection  of  persons  and  property  is 
the  fundamental  basis  of  social  order  and  social  progress, 
the  purpose  of  the  state  and  the  functions  of  government 
are  altogether  too  large  to  be  comprehended  under  the  con- 
ception of  protection.  The  true  conception  includes  pro- 
tection and  admits  that  it  is  fundamental,  but  it  does  not 
recognize  protection  as  exhausting  all  that  the  state  stands 
for.  The  state  not  only  represents  the  highest  culmination 
in  the  development  of  the  social  life  of  a  people,  but  it  is  at 
the  same  time  the  conditioning  instrument  in  the  totality  of 
their  development,  or  in  the  development  of  the  individual. 
To  this  end  the  protection  of  persons  and  property  is  a 
necessary  incident  but  it  is  only  one  among  many  incidents, 
though  we  will  grant  that  it  is  the  most  fundamental  and 
most  important.  Hence  the  aim  of  taxation  cannot  be  lim- 
ited to  the  one  end  of  protection.  Its  range  is  necessarily 
as  comprehensive  as  the  functions  of  government  acting  as 
the  agent  of  the  state  in  the  fulfilment  of  its  purpose.  This 
is  practically  conceded  by  defenders  of  the  protection  theory 
who,  like  Von  Hock,  make  protection  co-extensive  with 
national  well-being,^  or  who,  with  Sismondi,  make  it  include 

'  Von  Hock,  Die  'dffentlichen  Abgaben  und  Schulden,  §§  1-4. 


423]  POLITICAL  BASIS  AND  PRINCIPLES  8/ 

all  of  the  advantages  that  are  derived  from  it,  as  roads, 
honor,  justice,  education,  religion,  etc'  But  if  protection 
forms  too  narrow  a  conception  for  the  political  basis  of  taxa- 
tion, the  principles  deducible  from  this  conception  must  like- 
wise be  insufhcient,  as  we  shall  endeavor  to  show. 

2,  That  the  principles  deducible  from  such  a  basis  are 
insufficient  is  shown,  among  other  reasons,  in  the  fact  that 
those  who  proceed  upon  its  assumption  are  unable  to  carry 
the  doctrine  to  its  logical  conclusions.  For,  logically,  the 
theory  involves  the  cost-of-service  principle  of  taxation — 
the  apportionment  of  taxes  to  the  cost  of  the  protection, 
whether  of  persons  or  of  property.  This  position,  however, 
is  seldom  maintained,  it  being  usual  to  adopt  in  its  place  the 
principle  that  bases  the  tax  upon  the  advantages,  or  the 
benefits,  derived  from  the  protection.  But  even  if  we  assume 
that  this  principle  is  a  logical  consequence  of  its  leading 
premise,  as  in  a  limited  sense  it,  perhaps,  is,  it  does  not,  any 
more  than  the  cost  theory,  afTord  a  working  principle  for 
rules  of  taxation;  for  both  individual  costs  and  individual 
benefits  are  incalculable  quantities.  But  this  apart,  accord- 
ing to  the  benefit  principle  the  tax  should  be  proportioned 
to  the  benefits  received.  But  this  is  impracticable.  For 
on  the  one  hand  the  tax  should  equal  the  costs  (else  the 
protection  must  cease),  whether  or  not  the  costs  exceed  the 
benefits;  while  on  the  other  hand  the  tax  for  the  most  part 
cannot  equal  the  benefits,  otherwise  the  revenue  would  enor- 
mously exceed  legitimate  expenditure.  Thus,  neither  the 
principle  of  individual  costs,  nor  that  of  individual  benefits, 
the  only  logical  principles  deducible  from  a  purely  protec- 
tion basis,  are  practically  possible  principles  of  taxation, 
since  they  have  only  a  hypothetical  existence. 

Nor  do  we  wholly  escape  the  difficulty  by  harmonizing 
the  two  principles,  as  is  universally  done,  on  the  basis  of  the 

'  Sismondi,  &conomie  Politique,  Vol.  II,  p.  165  (Ed.  1827). 


88  JUSTICE  IN  TAXATION  [424 

totality  of  costs  and  the  totality  of  benefits,  assuming  as  the 
principle  of  taxation  that  the  taxes  of  each  should  be  such 
a  proportion  of  the  total  costs  as  he  shares  of  the  total  ben- 
efits. It  is  true  that  the  total  taxes  must  equal  the  total 
expenses  of  the  government,  but  the  protection  basis  of  tax- 
ation does  not  afford  in  itself  any  ground  for  distributing 
the  costs  according  to  the  benefits  received,  except  upon  the 
gratuitous  assumption  that  the  costs  and  benefits  are  in  every 
case  directly  proportioned  to  each  other.  But  even  if  this 
were  true  in  theory  no  definite  result  would  follow,  since  a 
proportion  could  not  be  established  between  two  unknown 
quantities. 

The  fact  is  that  upon  the  political  basis  of  protection  the 
■distribution  of  the  costs  of  protection  according  to  the  theory 
of  benefits  can  have  validity  only  upon  the  assumptions  :  ( i ) 
that  the  idea  of  protection  is  confined  strictly  to  the  pro- 
tection of  the  person  and  of  property;  (2)  that  the  value  of 
the  protection  of  the  person  is  precisely  the  same  for  every 
individual; '  (3)  that  the  value  of  the  protection  of  property 
bears  a  direct,  ascertainable  ratio  to  the  amount  of  property 
protected,^  a  ratio  that  is  most  commonly  assumed  to  be 
directly  proportional.  But  this  limitation  of  the  function  of 
government  we  have  already  seen  to  be  too  narrow  even  for 
the  defenders  of  the  protection  theory.  They  assume  that 
protection  covers  all  of  the  advantages  derived  from  the 
protection,  and  at  the  same  time  assume  that  these  advan- 
tages have  a  definite  money  value  that  is  proportioned  to 
the  amount  of  property  of  the  individual.  But  these  are 
assumptions  only ;   they  are  not  logic. 

The  failure  of  this  school  to  arrive  at  logically  deduced 
principles  is  emphasized  still  more  in  the  fact  that,  not  con- 

^  C/.  Von  Hock,  op.  cit.,  same  reference. 

*  Examples  are  too  numerous  to  mention.     It  is  the  almost  universally  accepted 
doctrine  of  those  influenced  by  the  conception  of  the  state  in  question  in  the  text. 


42  5]  POLITICAL  BASIS  AND  PRINCIPLES  89 

tent  with  the  theory  of  costs  or  of  benefits,  they  make  ability 
also  the  true  norm  of  taxation,  apparently  regarding  it  as 
deducible  from  the  theory  of  protection  and  in  harmony 
with  the  theory  of  benefits,  if  not,  indeed,  synonymous  with 
the  latter.^  But,  as  will  be  shown  later,  ability  is  a  principle 
quite  distinct  from  that  of  benefits,  and  has  a  foundation 
quite  distinct  from  that  of  the  protection  theory  of  the  state. 
The  ability  principle  implies  an  ethical  basis  that  is  not  to 
be  found  in  the  protection  theory,  or  the  theory  of  benefits. 
And  in  fact  the  inconsequences  in  the  conclusions  of  this 
school  arise  very  largely  from  the  assumption  of  principles, 
in  the  development  of  their  theory,  that  are  not  involved  in 
their  fundamental  premise — their  theory  of  the  state. 

3.  Not  least  important  among  these  assumptions  is  the 
assumption  of  ethical  relations  that  are  not  involved  in  the 
theory  of  the  state  upon  which  their  principles  are  based. 
For  if  protection  is  the  sole  basis  of  the  state,  originating  in 
an  actual  or  implied  contract  to  that  end,  the  tax,  as  we 
have  seen,  must  bear  a  definite  relation  to  the  cost,  or  at 
best  to  the  benefits,  of  that  protection.  There  can  be  no 
escape  from  the  tax  for  the  protection  of  the  person,  and  no 
escape  for  the  protection  of  property,  by  those  who  may 
possess  even  the  smallest  amount  of  it.  Moreover,  this 
theory  of  the  state  does  not  in  itself  involve  principles  from 
which  exceptions  may  be  logically  derived.  Hence  the  only 
ground  for  any  exception  to  the  above  rule  for  taxation  is 
that  of  absolute  necessity.  Many  writers,  indeed  I  think  I 
may  say  most  writers,  consistently  maintain  this  position, 
though  some  would  justify  exemptions  on  the  principle  of 
ability,  which  involves  ethical  considerations. 

Now  it  is  my  contention  that  any  theory  of  the  state  is 
essentially   defective    from   which    practicable   principles  of 

'  C/.  (or  example  Adam  Smith's  famous  first  canon  of  taxation,  since  widely  ac- 
cepted without  qualification. 


90  JUSTICE  IN  TAXATION  [42^ 

taxation  cannot  be  logically  derived,  since  a  state  implies  as 
well  as  necessitates  taxation.  But  such  a  theory  the  con- 
tract, or  its  counterpart  the  protection,  theory  does  not 
afford.  And  this  mainly  because  the  ethical  character  of 
the  state  is  ignored.  The  state  is  conceived  of  as  static  and 
as  consisting  of  external,  mechanical  relations ;  whereas  it  is 
dynamic  and  its  relations  are  essentially  internal,  psychical. 
This  means  also  that  the  relations  are  ethical,  and  that 
ethical  precepts  are  involved  in  the  rules  that  determine  the 
manner  of  the  state's  support.  It  means  further,  that  the 
ethical  precepts  should  dominate  more  and  more  in  the 
practical  rules  of  taxation  the  more  a  people  develops  its 
ethical  consciousness ;  that  principles  and  rules  of  taxation 
should  not  be  derived  from  primitive  conditions  of  society, 
but  from  the  conditions  prevailing  in  a  society  in  the  process 
of  developing  its  internal  relations,  and  with  reference  to  its 
ultimate  end.  We  may,  indeed,  seek  to  discover  principles 
that  controlled  actions  in  the  past,  but  in  searching  for  prin- 
ciples for  taxation  we  are  searching  for  principles  that  should 
control  the  action  of  the  future.  Such  principles  are  not 
mere  records  of  past  or  actual  experiences,  but  are  the 
formulation  of  ideal  norms  for  the  guidance  of  conduct^, 
determined  by  the  inner  nature  of  society  and  the  state. 

II.  The  Evolution  Theory  of  the  State  and 

Taxation. 

The  preceding  discussion  has  shown  us,  at  least  by  im- 
plication, that  principles  of  taxation  are  not  to  be  derived 
from  specific  functions  of  government,  or  from  the  historical 
origin  of  the  state,  but  are  to  be  derived  from  the  nature  and 
end  of  the  state,  which  involves  the  nature  and  end  of  the 
individuals  by  whom  the  state  is  composed.  Functions  of 
government  determine  limits  of  taxation,  and  the  actual 
origin  of  a  state  influences  the  character  of  its  system  of 


42/]  POLITICAL  BASIS  AND  PRINCIPLES  91. 

taxation,  but  in  neither  case  do  they  afford  a  basis  for  the 
determination  of  ethical  principles  for  the  distribution  of  the 
tax  burden.  Important  as  these  truths  are,  they  are  fre- 
quently ignored,  not  only  by  the  school  of  writers  just  con- 
sidered, but  among  others,  in  part  at  least,  by  Mr.  Spencer 
in  the  development  of  principles  of  taxation  based  upon  his 
evolution  theory  of  the  state. 

Turning,  then,  to  the  evolution  theory  of  the  state  (and  we 
shall  confine  ourselves  to  the  theory  of  Herbert  Spencer), 
we  shall  not  find  it  necessary  to  trace  the  evolution  of  the 
modern  state  from  the  primitive  horde  and  tribe,  for  the 
course  of  this  development  has  nothing  to  do  with  Mr. 
Spencer's  theory  of  taxation.  Besides,  in  this  respect  the 
theory  does  not  differ  essentially  from  the  historical  theory 
of  the  state,  except  that  the  evolution  theory  assumes  to 
discover  the  underlying  principle  that  guides  the  course  of 
the  development.  It  is'  the  principle  that  controls  develop- 
ment that  is  the  important  thing  in  Mr.  Spencer's  theory  of 
evolution,  and  the  principle  that  controls  social  evolution  is 
found  to  be  precisely  the  same  as  that  which  determines  all 
evolution  in  the  plant  and  animal  worlds — a  principle  that 
may  be  summarized  as  the  survival  of  the  fittest  struggling 
in  the  direction  of  the  least  resistance,  or,  by  co-operating 
forces,  overcoming  resistance.  Hence  the  evolution  of  the 
social  world,  like  that  of  all  life,  is  mechanical,  external ;  the 
moving  power  as  the  determinant  of  the  "fittest"  being 
ultimately  Force — the  force  to  resist  or  to  subdue,  the  force 
to  destroy  or  to  utilize. 

It  is  by  the  power  of  augmenting  such  forces  through  co- 
operation, that  political  society  is  made  possible,  and  it  is 
those  peoples  that  possess  this  power  in  the  greatest  degree 
that  are  the  fittest  to  survive  and  to  develop.  This  suggests 
that  social  organization  has  not  for  its  sole  purpose  mere 
survival,  but  has  a  larger,  ultimate  purpose  in  development 


92  JUSTICE  IN  TAXATION  428 

— the  development  of  social  organization  and  through  it  the 
development  of  the  fullest  life  of  the  individual;  for  the 
development  of  the  highest  possibilities  of  life  is  the  ultimate 
aim  of  all  evolution.  Now  the  all-essential  to  the  highest 
development  of  the  possibilities  of  individual  life,  that  is,  to 
the  development  of  human  nature,  is  the  largest  possible 
freedom  of  the  individual  in  the  exercise  of  his  own  powers 
as  directed  by  his  own  nature,  and  so  receiving  "the  good 
and  evil  results  of  his  own  nature  and  consequent  results."' 
But  if  this  rule  were  without  restraint  in  its  application  there 
would  be  only  individual  conflicts  without  individual  develop- 
ment. It  needs,  therefore,  limitation,  so  that  with  the  free- 
dom of  the  individual  to  develop  himself,  there  must  be 
recognized  the  like  freedom  of  others.  That  is,  "  in  the 
social  state  the  conduct  of  each  bringing  to  him  these  results 
must  be  restrained  within  the  limits  imposed  by  the  presence 
of  others  similarly  carrying  on  action  and  experiencing  re- 
sults."'' Thus  is  developed  the  fullest  life  compatible  with 
equal  freedom,  "the  ultimate  end  being  a  higher  develop- 
ment of  human  nature. "3  In  short,  while  there  should  be  full 
freedom  and  liberty  for  the  individual  in  the  exercise  of  his 
powers,  since  his  development  depends  upon  himself,  it  is 
true  that  his  personal  interests,  when  unrestrained,  tend  to 
come  into  conflict  with  the  like  interests  of  his  fellows,  who 
should  possess  the  same  freedom  of  development  as  himself. 
And  since  this  conflict  of  interests  will  not  cease  until  altru- 
ism dominates  the  world,''  such  freedom  and  liberty  of  each 
must  be  guaranteed  by  a  supreme  power — that  is,  by  the 
state.  The  sanction  for  this  interference  in  the  conduct  of 
the  individual  would  seem  to  lie  in  the  power  of  force — co- 
operative force — and  the  fact  that  those  peoples  that  enforce 
such  restraint  prove  themselves  the  fittest  to  survive  and  to 
develop. 

'  Spencer,  yusiice,  p.  221.  *  Ibid.  *  Ibid.,  p.  226. 

•  See  Spencer,  Data  of  Ethics,  chs   11-13. 


429]  POLITICAL  BASIS  AND  PRINCIPLES  93 

From  this  point  of  view  of  the  state,  and  from  what  we 
may  call  its  immediate  and  efficient  cause,  its  chief  purpose 
would  seem  to  be  to  act  as  a  protective  agency,  and  hence 
it  is  that  Mr,  Spencer  conceives  of  the  state  as  a  kind  of  a 
"joint-stock  protection-society,"  '  whose  function  is  to  guar- 
antee to  each  the  fullest  freedom  for  the  exercise  of  his  facul-  ^ 
ties  compatible  with  the  equal  freedom  of  all  others."^  But 
Mr.  Spencer  rightly  regards  protection  as  only  a  primary, 
immediate  function  of  government — a  means  to  an  end. 
This  end,  as  variously  stated,  is  to  "administer  justice,"  "to 
maintain  the  conditions  under  which  each  may  gain  the 
fullest  life  compatible  with  the  fullest  lives  of  fellow-citi- 
zens."3  Or,  it  is  "to  maintain  the  conditions  under  which 
individual  life  and  its  activities  may  be  carried  on,"*  though 
ultimately  it  is  "  the  formation  of  character."^ 

But  notwithstanding  this  recognition  of  ultimate  ends,  it  is 
the  immediate  function  of  government  that  is  the  important 
thing  in  Mr.  Spencer's    philosophy  of    the  state.     Indeed, 
when  a  government  assumes  to  do  more  than  protect  the 
individual  in  the  exercise  of  his   faculties,  that  is,  when  it  i 
assumes  to  participate    positively  in   the    development    of  { 
human     nature,  or  of   human   capacities  and  characters,  it 
defeats  itself  and  retards  rather  than  aids  the  development 
of  the  '  fullest  life.'^     And  this  conclusion  obtains  from  what- 
ever point  of  view  we  regard  the  state — from  its  immediate , 
or  its  ultimate  end.     The  state  (or  with  Mr.  Spencer  indiffer- 
ently, the    government)  must  act  simply  as  a    restraining 
power,  though  the  boundary  line  of  this  restraint  is  admit- 
tedly a  difficult  problem  to  determine. ^ 

From  such  a  theory  of  the  state,  what  principles  of  taxa- 

'  Spencer,  Social  Sialics  (Abridg.  Ed.),  p.  122.  *  Hid.,  p.  123. 

•  Spencer,  Justice,  pp.  213-4.  *  Jbid.,  p.  194.  •  Ibid.,  p.  251. 

•  Cf.  Social  Statici,  p.  127.     Also  Cb.  26,  especially  372. 

•  Ibid.,  p.  127  et  seq. 


g^  JUSTICE  IN  TAXATION  [430 

\tion  follow,  according  to  the  views  of  Mr.  Spencer?     In  the 

ifirst  place,  it  is  to  be  observed  that  since  the  government 

.■must  guarantee  equal  freedom  of  development,  or  negatively, 

fequal  conditions  "  under  which  individual  life  and  its  activi- 

•  ties  may  be  carried  on,"  it  is  bound  not  only  to  respect  a 

';  principle  of  equality  in  the  distribution  of  the  tax,  but  to 

exact  only  the  minimum  necessary  for  its  support;   since  to 

do  otherwise  would  be  to  deprive  us  of  our  liberties,  or  of 

the  freedom  to  exercise  our  faculties."  '     Indeed,  any  tax  is 

regarded  as  a  curtailment  of  our  liberty,  yet  necessary  to  the 

enjoyment  of  larger  liberties,  and  so  a  necessary  evil.     Or,  it 

is  a  necessary  "  sacrifice  of  a  part  to  ensure  the  remainder  of 

our  property." ' 

But  upon  what  principle  is  this  equality  to  be  realized  and 
taxation  confined  to  its  proper  limits?  Upon  Mr.  Spencer's 
theory  of  a  "  joint-stock  protection-society,"  the  true  meas- 
ure of  taxation  would  seem  to  be  the  principle  that  controls 
an  insurance  premium,  as  the  state  exists  to  guarantee  our 
lives  and  property  against  the  attacks  of  others,  and  also 
their  free  exercise  and  use.  But  with  Mr.  Spencer  the  limit 
of  taxation  is  found  in  the  actual  costs  necessary  to  guarantee 
the  desired  protection,  while  the  principle  of  distribution  is 
that  of  "  benefits  "  derived  from  the  protection. 

"  In  the  abstract,"  says  Spencer,  "  the  question  does  not 
appear  to  present  any  great  difficulty.  The  amounts'individu- 
ally  paid  should  be  proportioned  to  the  benefits  individually 
received.  So  far  as  these  are  alike  the  burdens  should  be 
alike ;  and  so  far  as  they  are  unlike  the  burdens  should  be 
unlike.  Hence  arises  a  distinction  between  the  public  expen- 
diture for  the  protection  of  persons  and  the  public  expendi- 
ture for  the  protection  of  property.  As  life  and  personal  safety 
are,  speaking  generally,  held  equally  valuable  by  all  men, 

•  Spencer,  Social  Siatics,  p.  123. 

*  yustice,  209.     Cf.  also  Montesquieu,  De  /'  esprit  des  his,  bk.  xiii,  ch.  I. 


43 1 ]  POLITICAL  BASIS  AND  PRINCIPLES  95 

the  implication  appears  to  be  that  such  public  expenditure 
as  is  entailed  on  their  account  should  fall  equally  upon  all. 
On  the  other  hand,  as  the  amounts  of  property  possessed  at 
the  one  extreme  by  the  wage  worker,  and  at  the  other 
extreme  by  the  millionaire,  differ  immensely,  the  implication 
is  that  the  amounts  contributed  to  the  costs  of  maintaining 
property  rights  should  vary  immensely — should  be  propor- 
tionate to  the  amount  of  property  owned,  and  vary  to  some 
extent  according  to  its  kind.' 

Not  only  should  taxes  be  proportioned  to  benefits,  but 
"  state  burdens,  however  proportioned  among  citizens, 
should  be  borne  by  all.  Every  one  who  receives  the  bene- 
fits which  government  gives,  should  pay  some  share  of  the 
costs  of  government,  and  should  directly  and  not  indirectly 
pay  it." ' 

In  the  above  quotations,  we  have  substantially  all  that  Mr. 
Spencer  has  to  say  respecting  principles  of  taxation,  although 
the  same  ideas  are  several  times  repeated  in  his  different 
works.  And  the  sum  and  substance  of  the  principles  that 
Mr.  Spencer  finds  deducible  from  his  theory  of  the  state  are, 
that  the  tax  should  be  proportioned  to  benefits,  and  should 
be  universal.  But  since  Spencer,  with  Von  Hock,  distin- 
guishes between  the  protection  of  the  person  and  of  prop- 
erty, and  consistently  so,  there  must  be  one  universality  for 
persons  and  another  for  property 

We  cannot  stop  here  to  enter  into  a  criticism  of  Mr.  Spen- 
cer's theory  of  the  state  which  he  assumes  as  the  basis  of  his 
principles  of  taxation.  For  us  the  question  is :  Are  these 
principles  logically  deduced,  and  are  they  consistent  with  the 
demands  of  justice?  Or  we  may  ask:  Is  this  theory  of  the 
state  itself  capable  of  supplying  principles  that  satisfy  the 
highest  demand  of  justice? 

I.  Mr.  Spencer  deduced  his  principles  from  his  theory  of 

'  yustict,  pp.  198-9.  » Ibid.,  p.  194. 


96  JUSTICE  IN  TAXATION  [432 

government  as  a  "  a  joint-stock  and  protection-society" — 
from  his  theory  of  the  functions  of  government;  not  from  his 
his  theory  of  the  evolution  of  the  state — not  from  the  nature  of 
the  state  itself.  And  assuming  the  same  functions,  he  arrives 
at  the  same  conclusions  as  those  who  hold  to  the  contract 
theory,  or  to  the  protection  theory  of  the  state — the  theory 
of  benefits  and  universality.  But  we  maintain  that  neither 
his  theory  of  the  functions  of  government,  nor  his  princi- 
ples of  taxation,  are  necessary  deductions  from  the  evolu- 
tion theory  of  the  state.  For  if  society  is  a  "  growth " 
and  not  a  "  manufacture,"  '  the  same  must  be  true  of  the 
state,  for  Mr.  Spencer  does  not  distinguish  between  the  state 
and  its  government,  and  thus  to  assume  that  the  state  goes 
on  developing  while  its  functions  remain  constant,  is  to  con- 
tradict himself,  and  to  assume  for  the  state  dynamic,  and  for 
the  government  static  conditions.  It  means,  further,  that 
while  evolution  is  recognized  as  the  all-controlling  social 
force,  yet  arbitrary  limits  may  be  assigned  to  it ;  that  after 
all,  it  is  the  preconceived  notion  of  what  ought  to  be,  and 
not  the  actual  trend  of  evolution,  that  has  formed  the  basis 
of  conclusions.  It  is  true  that  Mr.  Spencer's  individualism 
has  given  color  to  this  theory  of  governmental  functions,  but 
it  is  not  consistent  with  his  theory  of  the  ultimate  end  of  the 
state  to  assign  arbitrary  limits  to  the  functions  of  its  govern- 
ment, the  agency  through  which  it  must  realize  its  end. 

The  same  criticism  may  be  applied  to  the  principles  of 
taxation.  For  if  there  is  any  truth  in  this  theory  of  evolu- 
tion, the  principles  of  taxation  must  vary  from  time  to  time 
with  the  progress  in  social  evolution,  conforming  to  existing 
ideals  and  standards  of  society.  Again,  if  we  recall  that  all 
evolution,  according  to  Mr.  Spencer,  is  a  product  of  exter- 
nal, material  forces  and  laws,  the  non  sequitur  of  his  conclu- 
sions becomes  even  more  apparent.    Whether,  on  the  theory 

*  Cf,  Justice,  p.  247. 


433]  POLITICAL  BASIS  AND  PRINCIPLES  97 

of  evolution,  a  tax  should  conform  to  benefits  and  be  univer- 
sal, must  depend  upon  whether  the  evolution  of  the  state  is 
best  promoted  by  an  application  of  these  principles.  Nor 
does  the  theory  of  evolution,  in  itself,  afford  any  a  priori 
reasons  in  support  of  these  principles. 

For  a  criticism  of  these  principles  as  deductions  from  Mr. 
Spencer's  theory  of  the  functions  of  government  we  may 
refer  to  the  preceding  discussion.'  But  to  this  we  may  also 
add,  that  however  true  it  may  be  that  the  protection  of  life  has 
an  equal  value  for  all,  it  is  by  no  means  self-evident  that  the 
benefits  derived  from  the  protection  of  property  are  propor- 
tional to  the  amount  of  property  protected.  Indeed,  the 
opposite  conclusion  has  more  reason.  Still  more,  the  pro- 
tection of  property  affords  benefits  to  the  propertyless  as 
well  as  to  the  property  holders,  though  in  a  less  degree. 

2.  As  to  the  ethical  character  of  the  principles,  we  may 
refer  again  to  the  preceding  discussion,^  where  it  is  shown 
that  while  the  principle  of  universality  is  true  as  a  general 
principle  it  nevertheless  requires  exceptions ;  and  that  the 
principle  of  benefits  is  lacking  in  important  ethical  consider-^ 
ations.  But  more  than  this,  we  maintain  that  Mr.  Spencer's 
theory  of  social  evolution  does  not  afford  a  sufficient  basis 
for  ethical  principles  of  taxation.  The  conception  of  a  state 
as  composed  of  individuals  who  are  little  more  than  abstrac- 
tions of  the  individual  as  he  is  in  actual  life,  and  of  relations 
that  are  little  more  than  artificial  and  mechanical,  are  not 
conceptions  to  give  a  basis  for  ethical  principles.  No  theory, 
indeed,  can  meet  the  requirements  of  ethical  demands  that 
does  not  conceive  of  the  individual  as  a  self-realizing  spiritual 
entity — a  person;  as  also  having  a  social  nature  which  is 
such  a  vital  part  of  himself  that  apart  from  it  he  has  no  real- 
ity as  a  person.  For  only  with  such  a  conception  can  the 
relations  of  individuals  to  each  other  in  society  be  rightly 

'  See  ante,  p.  73  et  seq.  *  Ante,  p.  75  et  seq. 


gS  JUSTICE  IN  TAXATION  [434 

understood,  or  ethical  principles  deduced.  Material  agencies 
may  issue  in  conduct,  but  not  in  moral  conduct.  In  brief, 
a  philosophy  of  taxation,  like  a  philosophy  of  the  state, 
must,  as  we  have  before  observed,  take  into  consideration  the 
whole  man. 

But  such  is  not  the  case  with  the  theory  of  evolution  in 
question.  Principles  of  taxation  that  follow  from  it  must 
result  from  the  law  of  the  "  survival  of  the  fittest,"  must  be 
such  as  are  best  adapted  to  the  conditions  of  social  life,  and  to 
the  economic  conditions,  as  they  at  any  time  exist.  It  is  true 
that  such  a  result  may  be  contained  in  the  principle  of  uni- 
versality ;  but  it  is  equally  true  that  those  conditions  might 
be  met  only  by  a  modification  of  the  law  of  universality — by 
means  of  exceptions;  while  under  Mr.  Spencer's  assump- 
tion the  law  of  universality  admits  of  no  exceptions.  The 
benefit  principle,  however,  cannot  conform  to  such  condi- 
tions, since  it  is  not  capable  of  practical  realization,  as  there 
is  no  justification  for  the  assumption  that  benefits  are  propor- 
tioned to  the  amount  of  property. 

Finally,  it  may  be  added  that  Mr.  Spencer's  theory  of  tax- 
ation is  not  consistent  with  his  theory  of  a  social  organism. 
For  if  the  state  is  an  organism  (as  he  maintains  in  spite  of 
his  own  refutation  of  the  doctrine),  taxation  should  be  based 
upon  the  economic  ability  of  the  individual,  apart  from  any 
personal  needs;  other,  at  least,  than  those  of  the  necessary 
minimum,  since  as  a  member  of  the  organism  he  must  exist 
and  act  to  the  extent  of  his  capacity  for  the  whole,  and  not 
for  himself. 

III.  The  Utilitarian  Theory  of  the  State  and 

Taxation. 

While  almost  any  theory  of  the  state  possesses  certain 
utilitarian  characteristics,  there  is  nevertheless  a  distinctively 
.utilitarian  theory  based   upon  utilitarian    ideas;   and  while 


435]  POLITICAL  BASIS  AND  PRINCIPLES  99 

utilitarian  principles  have  been  applied  to  taxation  mainly 
from  an  ethical  or  an  economic  point  of  view,  there  is  an 
underlying  basis  in  a  utilitarian  political  philosophy.  It  is 
this  latter  point  of  view,  as  furnishing  a  basis  for  principles 
of  taxation,  that  I  wish  to  consider  here.  In  doing  so  I 
shall  confine  myself  to  Mill  and  to  Sax,  though  the  former 
considered  the  question  more  from  an  ethical,  the  latter  from 
an  economic  point  of  view. 

I.  The  Theory  of  Mill.  According  to  Mill  mankind  is  of 
such  a  nature  that  every  individual  seeks  the  greatest  pos- 
sible amount  of  pleasure  and  the  avoidance  of  the  greatest 
possible  amount  of  pain,  the  ideal  aim  of  life  being  "  the  great- 
est happiness  of  the  greatest  number." '  Now  this  ideal  is 
most  nearly  realized  when  every  individual  is  given  the  full- 
est liberty  to  act  according  to  his  own  impulses  and  beliefs, 
subject  only  to  the  like  liberty  of  others.*  It  is  in  the  main- 
tenance of  the  conditions  essential  to  this  equal  liberty  that 
the  utility  of  a  government  consists.  That  is,  the  utility  and 
sanction  of  government  consists  in  its  usefulness  to  the  ends 
of  the  individual,  a  utility,  therefore,  that  is  "  grounded  upon 
the  permanent  interests  of  man  as  a  progressive  being." 
And  it  is  because  these  interests  cannot  be  realized  through 
an  independent  life  that  they  "  authorize  the  subjection  of 
individual  spontaneity  to  external  control,  but  only  in  r-e- 
spect  to  those  actions  which  concern  the  interests  of  other 
people."  But  such  a  common  interest  is  limited  to  the 
maintenance  of  the  conditions  of  the  free  activity  of  the  in- 
dividual, in  a  word,  to  self-protection.  Indeed,  says  Mill, 
*'  the  sole  end  for  which  mankind  are  warranted,  individually 
or  collectively,  in  interfering  with  the  liberty  of  action  of  any 
of  their  number,  is  self-protection,"  ^     With  the  functions  of 

•  Cf.  Mill,  Utilitarianism.  '  Cf.  Mill,  On  Liberty,  ch,  3  and  4. 

*  On  Liberty,  Introduction. 


lOO  JUSTICE  IN  TAXATION  {^436 

government  thus  directed,  but  also  thus  restricted,'  there  is 
developed  the  highest  individuality,  and  by  implication  the 
greatest  happiness  of  the  greatest  number. 

It  will  be  noted  that  Mill  arrives  at  the  same  conclusion 
as  Spencer  respecting  the  functions  of  government;  and  we 
shall  see  that  he  also  arrives  at  essentially  the  same  princi- 
ples of  taxation,  derived,  as  with  Spencer,  from  the  relations 
of  the  individual  to  the  functions  of  government,  but  also 
with  the  ethical  ideal  uppermost  in  mind.  For  with  Mill 
the  protection  that  guarantees  equal  liberty  of  performance, 
of  the  development  of  individuality,  and  so  of  the  highest 
happiness  of  the  individual  and  of  mankind,  is  of  interest  to 
all  since  all  are  benefited  by  it.  And  hence,  "  every  one 
who  receives  the  protection  of  society  owes  a  return  for  the 
benefit,  and  the  fact  of  living  in  society  renders  it  indis- 
pensable that  each  should  be  bound  to  observe  a  certain  line 
of  conduct  towards  the  rest."  And  among  other  things, 
this  "  line  of  conduct "  consists  "  in  each  person  bearing  his 
share  (to  be  fixed  on  some  equitable  principle")  of  the  labors 
and  sacrifices  incurred  for  defending  the  society  or  its  mem- 
bers from  injury  and  molestation."  "^ 

But  how,  according  to  Mill,  is  the  "  share  "  of  each  to  be 
determined?  It  must,  he  says,  be  upon  some  "equitable 
principle,"  and  such  a  principle  he  finds  contained  in  the 
idea  of  "  equality."  Equality  is  regarded  as  the  basic  prin- 
ciple of  government,  whose  chief  function  it  is  to  maintain 
equal  liberty  in  the  enjoyment  of  pleasures,^  and  equal  con- 

*  In  his  later  life  Mill  did  not  so  restrict  the  functions  of  government,  though  he 
did  not  change  his  utilitatian  ideas  or  his  principles  of  taxation.  Cf.  for  example, 
bis  Autobiography  and  the  later  editions  of  his  Political  Economy, 

'  On  Liberty,  ch.  4. 

*  With  Mill  "  pleasure"  is  not  merely  Hedonistic,  sensual,  but  it  is  a  "  happi» 
ness  "  that  includes  intellectual  pleasures,  and  which,  indeed,  with  doubtful  con- 
siiiency,  Mill  makes  the  highest  pleasure.  Cf.  Mill,  Utilitarianism;  and  Green^ 
Prolegomena,  p.  168  et  seq. 


437]  POLITICAL  BASIS  AND  PRINCIPLES  loi 

ditions  in  the  avoidance  of  pains.  Therefore,  for  the  labor 
and  sacrifices  incurred  in  maintaining  these  equal  liberties 
and  conditions  there  should  be  an  "  equality  of  sacrifice"  on 
the  part  of  those  benefited;  or  "equality  of  sacrifice" 
should  be  the  guiding  principle  of  taxation.  That  is,  the 
government  should  "  apportion  the  contribution  of  each 
person  towards  the  expenses  of  government  so  that  he 
shall  feel  neither  more  nor  less  inconvenience  from  his 
share  of  the  payment  than  every  other  person  experiences 
from  his."  ' 

We  shall  postpone  for  future  discussion  the  merits  of  this 
principle  as  an  economic  or  an  ethical  principle  and  inquire 
here,  as  in  the  case  of  the  preceding  theory,  whether  the 
principle  is  consistent  with  the  theory  of  the  state  upon 
which  it  is  founded,  and  whether  this  theory  of  the  state  is 
adequate  to  the  determination  of  satisfactory  principles. 

I.  The  theory  of  Mill,  at  the  outset,  has  the  advantage 
over  either  of  the  preceding  theories  in  that  it  assumes  an 
ethical  end  in  the  purpose  of  the  state,  and  involves  ethical 
relations  among  individuals  as  they  exist  in  society,  what- 
ever may  be  said  of  the  ethical  end  in  itself.  Granting, 
however,  the  ethical  ideal,  and  also  the  assumption  that  the 
ideal  is  best  attained  by  the  maintenance  of  an  equal  liberty 
of  individual  action,  of  individual  direction  of  one's  activities 
— one's  emotions  and  ideals — and  equality  would  rightly 
seem  to  be  the  justly  dominating  principle  of  social  life. 
Hence,  also,  it  is  that  in  the  maintenance  of  the  conditions  of 
equal  liberty  there  should  be  an  equality  of  individual  sacri- 
fice corresponding  to  the  equal  benefits  derived  from  the 
equal  liberty.  As  individuals  share  equally  in  the  benefits, 
so  also  should  they  share  equally  in  the  sacrifices  necessary 
to  obtain  them. 

It  is  further  not  only  consistent  with  the  theory  of   Mill, 

^  Mill,  Political  Economy,  bk.  v.,  ch.  2,  §  2. 


I02  JUSTICE  IN  TAXATION  [438 

but  also  its  merit,  that  it  fairly  solves  the  problem  of  abso- 
lute and  relative  equality,  the  absolute  equality  being  of  a 
subjective,  the  relative  equality  of  an  objective  character. 
For  with  respect  to  the  property  enjoyed  under  the  protec- 
tion, or  guaranteed  liberty,  of  the  government,  there  is  only 
a  relative  equality  of  benefits,  and  so  there  is  and  should  be 
only  a  relative  equality  in  the  goods  given  up  for  the  sup- 
port of  the  government;  but  with  respect  to  the  conditions 
of  liberty  in  the  free  use  of  our  faculties,  so  far  as  the  gov- 
ernment is  concerned  in  them,  there  is  an  absolute  equality 
of  subjective  interest,  and  hence  there  should  be  an  absolute 
equality  of  subjective  sacrifice  for  the  maintenance  of  those 
conditions.  Such  an  equality  is  found  in  Mill's  subjective 
"equality  of  sacrifice"  as  the  norm  for  the  distribution  of 
taxes. 

(2)  But  apart  from  the  question  whether  equality  of  sac- 
rifice is  the  ideal  norm  of  taxation — a  question  to  be  con- 
sidered later — the  utilitarian  theory  of  Mill  is  otherwise 
defective.  True,  he  rightly  considers  the  question  from  the 
point  of  view  of  the  ultimate,  and  not  the  immediate,  end  of 
the  state,  and  therefore  escapes  the  criticisms  passed  upon 
the  protective  theory.  But  the  faults  of  the  theory  arise 
mainly  from  the  defectiveness  of  its  ethical  standard  which 
we  shall  have  occasion  elsewhere  to  criticise.  Besides,  the 
theory  is  further  defective  in  that  its  ideals  and  results  are 
essentially  of  a  subjective  character,  and  so  are  incapable  of 
the  necessary  quantitative  determination.  Nor  would  it  be 
easy  to  find  in  the  Greatest  Happiness  principle  any  definite 
standard  for  deviations  from  the  rule  of  universality  in  the 
tax  obligation  for  the  maintenance  of  the  conditions  of  equal 
liberty.  And  there  would  be  the  same  difficulty  in  de- 
termining these  exceptions  on  the  principle  of  equality  of 
subjective  sacrifice. 

2.   T/te  Utilitaria7i  Theory  of  Sax  and  the  Austrian  School. 


439]  POLITICAL  BASIS  AND  PRINCIPLES  103 

A  far  more  elaborate  attempt  to  place  taxation  upon  utili- 
tarian principles  is  to  be  found  in  Sax  and  the  Austrian 
school  of  economists.'  But  with  them  the  theory  loses  its 
ethical  character  and  assumes  a  distinctly  economic  form. 
Yet  the  theory  is  founded  upon  the  utilitarian  principle  of 
pleasure  and  pain,  a  principle  that  it  is  assumed  applies 
equally  to  the  collective  and  to  the  individual  life.  That  is 
to  say,  pleasure  and  pain  are  supposed  to  determine  col- 
lective activity  in  precisely  the  same  way  that  they  determine 
individual  activity.  And,  indeed,  the  collective  life  has  the 
same  end  in  view — the  increase  of  the  sum  total  of  pleasure ; 
and,  further,  it  exists  to  promote  this  end  wherever  it  is 
more  competent  than  individual  action. 

As  worked  out  by  Sax  the  theory,  in  brief,  is  as  follows: 
Man  is  a  creature  of  wants — sensuous  and  intellectual,  moral 
and  religious,  social  and  economic,  etc.,  etc. — whose  satis- 
faction with  the  least  possible  pain,  or  sacrifice,  to  himself  is 
the  aim  of  his  life.  Of  these  wants,  infinite  in  their  variety, 
some  are  satisfied  by  the  individual  directly,  others  by  the 
associated  or  collective  action  of  individuals.  The  former 
are  called  collective  wants,  the  latter  individual  wants.  Of 
the  collective  wants,  which  alone  concern  us,  some  are  satis- 
fied by  voluntary  associations  within  the  state,  others  by 
society  as  a  collective  whole,  organized  as  a  body  politic. — 
by  the  state  itself.  But  however  satisfied,  the  ruling  principle 
of  all  wants  is :  the  greatest  possible  satisfaction  with  the 
least  possible  effort — with  the  least  individual  sacrifice. 

Now  this  principle  not  only  determines  all  collective  action 
but  also  what  action  shall  become  collective,  that  is,  the  func- 

»Sax,  Grundlegung  der  theoretischen  Staatswirthschafl ;  z\%o.  Die  Frogressiv- 
steuer ;  '^itstr,  N'atural  Value;  Ricca-Salerno,  Scienza  della  Finama  ;  Flora, 
Scienza  delle  Finanze.  The  work  of  Sax  is  profuse  and  difficult;  that  of  Ricca- 
Salerno  brief  and  clear.  A  very  good  statement  of  this  theory  is  given  by  Flora  in 
the  Rassegna,  for  August,  1893,  ii^  an  article  entitled,  //  Concetto  della  Economia 
Finanziaria. 


I04  JUSTICE  IN  TAXATION  [440 

tions  of  government.  These  functions  extend  to  the  satis- 
faction of  all  wants  that  could  not  be  satisfied  by  individual 
effort,  or  if  so  only  by  a  greater  sum  total  of  individual  sac- 
rifice. These  wants  have  no  absolute  restriction  but  are  rel- 
ative to  the  conditions  of  a  given  civilization,  to  the  convic- 
tions of  a  people.  As  Flora  says,  "  The  measure  of  the 
action  of  a  state  is  a  product  of  the  wills  of  its  members,"  ' 
but  wills  that  are  determined  by  ideals  of  pleasure  and  pain. 

That  is  to  say,  collective  wants  of  whatever  kind  are  de- 
termined by  the  law  of  satisfaction  common  to  all  wants,  a 
condition  thai  follows  from  the  nature  of  the  individual  and 
of  society.  For  collective  want,  in  its  last  analysis,  like  all 
want,  necessarily  pertains  to  psycho-physical  organisms  and 
not  to  a  personified  collective  being  that  has  only  mythical 
existence.  Hence,  collective  action,  like  individual  action, 
must  be  determined  by  the  law  of  greatest  utility  and  of  least 
disutility,  in  a  word,  by  the  law  of  "  marginal "  utility. 
Hence,  also,  the  same  law  must  determine  principles,  or 
more  strictly  laws  of  taxation. 

In  this  simple  law  of  the  satisfaction  of  want  Sax  thinks 
that  he  has  found  the  key  to  the  solution  of  the  whole  prob- 
lem of  true  principles  of  taxation,  and,  indeed,  in  its  sim- 
plicity he  finds  a  guarantee  of  its  validity.''  But  Sax  does 
not  discover  any  new  principle  from  this  law  of  utility,  for 
his  "  equivalence  of  burdens,"  which  he  deduces  from  the 
law  of  marginal  utility,  is  in  reality  nothing  but  Mill's 
"  equality  of  sacrifice,"  in  spite  of  the  assumption  to  the 
contrary.  Indeed,  Sax  sums  up  his  principle  in  almost  the 
exact  words  of  Mill;  for  his  principle  of  taxation  is:  that 
"every  individual  should  value  the  goods  taken  from  him  as 
highly  as  every  other  individual  values  those  taken  from 
him."  3     In  other  words,  the  marginal  utility  of  goods  taken 

*  op.  cit.,  p.  8. 

*  "  Die  Einfachkeit  der  Losung  ist  eine  Biirgschaft  ihrer  Richtigkeit."     Sax,  op. 
iil.,  p.  308.  '  Ibid.,  p.  514.     See  ante,  p.  88. 


441]  POLITICAL  BASIS  AND  PRINCIPLES  105 

as  a  tax  should  produce  an  equivalent  sacrifice.  Yet  in  his 
method  of  treatment  Sax  differs  quite  materially  from  Mill, 
particularly  in  relation  to  collective  wants  and  in  confining 
himself  solely  to  the  view-point  of  economics.  For  with  Sax 
the  political  basis  is  put  into  the  background,  while  the 
ethical  is  considered  as  having  no  place  in  determining  prin- 
ciples of  taxation,  since  taxation  has  to  do  with  what  is  and 
not  with  what  ought  to  be. 

A  criticism  of  the  theory  of  Sax  must,  therefore,  be  made 
in  connection  with  the  economic  basis  of  taxation.  But  with 
respect  to  the  political  basis  it  may  be  observed,  that  if  we 
grant  the  primary  assumptions  of  Sax  his  conclusions  would 
seem  to  follow.  We  cannot,  however,  concede  that  the 
economic  law  of  marginal  utility,  based  upon  self-interest, 
determines  collective  action  in  precisely  the  same  way  that 
it  determines  the  economic  action  of  the  individual;  nor 
that  economic  laws  take  precedence  over  ethical  considera- 
tions in  the  determination  of  principles  of  taxation ;  or  that 
ethical  principles  are  nothing  but  the  results  of  the  action  of 
economic  laws,  as  is  virtually  assumed  by  Sax.  And  because 
of  the  faultiness  of  these  assumptions  the  political  basis  fails 
as  a  basis  for  principles  of  taxation.  The  theory  is,  further, 
like  Mill's  too  subjective,  too  abstract.  We  postpone  further 
criticism. 

But  whatever  criticism  may  be  passed  upon  the  theory 
of  Sax  it  must  be  admitted  that  his  general  views  are  not 
only  suggestive  but  also  contain  much  truth.  The  chief 
merits  of  his  treatment  are :  Its  conception  of  the  state,  as  a 
social  organization  essential  to  the  highest  development  of 
the  individual,  and  yet  not  itself  a  social  organism  ;  its  recog- 
nition of  the  flexibility  and  the  relativity  of  collective  wants, 
and  therefore  of  the  functions  of  government;  its  rich  sug- 
gestiveness  in  making  the  philosophy  of  taxation  a  part  of 
the  general  philosophy  of  human  wants ;   its  emphasis  upon 


I06  JUSTICE  IN  TAXATION  [442- 

the  satisfaction  of  wants,  rather  than  upon  the  benefits  of  gov- 
ernment, as  the  measure  of  taxation ;  though  by  faiHng  in  a 
due  recognition  of  the  ethico-social  nature  of  collective  wants, 
and  so  of  the  implications  involved  therein,  he  fails  to  dis- 
cover the  true  norm  that  should  determine  their  satisfaction. 

IV.     Social  Theories  and  Taxation 

We  have  thus  far  treated  of  theories  that  pertain  to  histor- 
ical or  actual  forms  of  state  and  government,  and  it  may  be 
well  before  closing  the  present  chapter  to  say  a  word  respect- 
ing the  character  of  taxation  involved  in  such  ideal  social 
theories  as  anarchism,  communism  and  socialism.  True, 
such  theories  may  not  be  able  to  throw  much  light  on  prin- 
ciples of  taxation  that  are  consistent  with  prevailing  notions 
of  the  political  state,  since  the  total  abolition  or  the  com- 
plete transformation  of  such  states  is  a  part  of  their  scheme 
of  taxation.  And  yet  they  are  not  wholly  without  their  les- 
sons in  their  conceptions  of  the  nature  of  individuals,  their 
relations  to  each  other  in  society,  and  their  mutual  obliga- 
tions in  their  associations  with  each  other. 

I.  Anaj'chism.  Nominally  under  anarchism  there  is  no 
state,  but  only  voluntary  associations.  Force  as  a  coercive, 
collective  power,  is  completely  wanting.  All  association, 
and  therefore  all  political  association,  must  be  voluntary, 
else  there  would  be  a  denial  of  individual  liberty ;  and  for 
the  same  reason  all  support  of  these  voluntary  associations, 
of  whatever  sort,  must  likewise  be  a  voluntary  support. 
Membership  in  the  association,  and  therefore  support  of  it, 
is  permanent  or  temporary  according  to  the  choice  of  the 
individual. 

Under  such  a  social  system  the  conscience,  or  the  ethical 
standard,  of  the  individual  must  be  the  sole  determinant  of 
the  amount  of  individual  contributions,  as  no  force  can  be 
applied.     Should  an  association  forbid  membership  to  any 


443]  POLITICAL  BASIS  AND  PRINCIPLES  107 

individual,  or  enforce  contributions  as  a  condition  of  mem- 
bership, it  would  defeat  its  own  purpose  and  repudiate  its 
own  notion  of  individual  liberty.  Yet,  until  the  millennium 
appears,  or  so  long  as  human  nature  remains  as  it  is,  en- 
forcement of  contribution,  and  the  determination  of  the  pro- 
portionate share  of  each,  is  inevitable.  The  conscience  of 
the  individual  can  not,  as  yet,  be  trusted  to  determine  his 
share  of  the  necessary  contributions.  Nevertheless,  the 
anarchist  view  has  its  lesson  in  its  emphasis  upon  the  volun- 
tary side  of  political  society,  and  upon  the  ethical  character 
(at  least  by  implication)  of  the  obligation  to  contribute  for 
its  support.  And  yet  there  is  only  a  half-truth  in  this 
doctrine.  There  must  be  a  social  determination  and  a 
social  enforcement,  else  the  association  must  cease  to  exist. 
2.  Communism.  Communism  in  its  objective  form  is 
little  more  than  the  constructive  side  of  philosophic  an- 
archism,' As  with  anarthism  political  and  industrial  society 
are  organized  in  one  common  Association,  but  while  the 
association  is  voluntary,  communistic  ideals  do  not  preclude 
the  enforcement  of  its  laws.  Communism,  further,  finds  a 
definite  principle  of  association  in  the  idea  of  the  brother- 
hood of  man,  from  which  it  deduces  as  a  principle  of  col- 
lective activity :  "  From  each  according  to  his  ability,  to 
each  according  to  his  needs."  This  principle  which  should 
actuate  all  social  effort  must  also  control  the  contributions 
which  it  involves.  True,  technically  speaking,  there  is  no 
taxation  in  a  communistic  society,  since  the  officers  of  the 
community  share  in  the  product  on  the  same  basis  as  the 
producers.  But  the  support  of  the  officers,  and  the  provi- 
sion of  the  material  wants  of  the  government  from  the  com- 
mon product  is  as  much  taxation  as  a  direct  levy  upon  the 
property  or  income  of  the  individual ;  for  in  either  case  the 
support  of  the  government  comes  from  individual  labor  and 

*  See  Benjamin  F.  Tucker,  Instead  of  a  Book. 


I08  JUSTICE  IN  TAXATION  [444 

effort,  from  the  giving  up  of  the  results  of  one's  own  labor 
to  the  community.  And  since  the  common  fund  is  the  re- 
sult of  the  combined  labor  of  the  whole,  each  producing 
according  to  his  ability,  the  burden  of  the  support  of  the 
community  is  necessarily  proportioned  to  the  ability  of  its 
members.  Here  we  virtually  have  "  universality "  and 
"  ability  "  as  the  two  cardinal  principles  of  taxation,  deduci- 
ble  from  the  nature  of  the  social  organization  and  the 
ethical  ideal  upon  which  it  is  founded — the  brotherhood  of 
man.  These  principles  are  both  consistent  and  sound.  The 
error  of  communism  lies  in  the  assumptions  which  it  bases 
upon  the  idea  of  a  common  brotherhood,  particularly  with 
respect  to  the  nature  and  character  of  the  collective  life.  It 
exaggerates  the  communal  idea  as  anarchism  does  that  of 
the  individual.  Its  great  merit  is  the  emphasis  it  places 
upon  the  ethical  side  of  social  life, 

3.  Socialism.  So  many  social  ideals  are  included  under 
this  caption  that  I  must  confine  myself  to  that  type  of  social- 
ism that  is  known  as  Scientific  Socialism,  or  Collectivism — 
the  socialism  that  would  abolish  political  states — the  Polizei- 
Staat — and  establish  in  their  stead  industrial  states,  which 
are  to  own  all  the  means  of  production  and  to  direct  and 
control  all  industries.  Under  such  a  system,  it  is  assumed, 
there  will  be  no  occasion  for  the  exercise  of  police  powers, 
and  the  state  will  have  only  economic  functions  to  per- 
form. Yet  every  individual  must  be  guaranteed  an  equal 
opportunity  in  the  satisfaction  of  his  economic  wants.  Such 
guarantee,  however,  is  supposedly  fulfilled  by  the  system 
itself,  which  ofTers  the  same  opportunity  to  all  to  make  use 
of  the  means  of  production.  That  is  to  say,  the  equality, 
which  it  is  assumed  is  the  fundamental  human  right,  and  the 
basic  principle  of  the  state,  is  an  "equality  of  opportunity," 
an  equality  of  use,  not  an  equality  of  possession.  Hence 
the  quantity  of   goods  acquired  by  each  individual  for  the 


445]  POLITICAL  BASIS  AND  PRINCIPLES  109 

satisfaction  of  his  wants  should  depend  upon  his  ability  and 
inclination  to  labor,  as  in  the  system  of  Rodbertus ;  but  in 
the  less  just  system  of  Marx  it  depends  upon  the  "  average 
labor  time"  necessary  for  the  production  of  commodities. 
And  the  same  principle  that  determines  the  share  of  each  in 
the  common  product,  must  determine,  also,  the  contribu- 
tions of  each  to  the  common  reservoir,  the  common  fund, 
out  of  which  the  shares  are  distributed. 

But  the  government  is  also  maintained  out  of  the  common 
fund.  Upon  what  principle,  then,  is  the  burden  of  support- 
ing the  government  distributed?  Necessarily,  the  share  of 
the  common  burden  must  depend  upon  the  portion  that  each 
contributes  to  the  common  product.  In  other  words,  the 
distribution  of  the  expenses  of  the  government  will  be  rela- 
tive to  the  standard  of  private  wants  and  the  degree  of  their 
satisfaction ;  or,  in  brief,  upon  the  use  that  one  makes  of  his 
opportunities.  Nominally,  then,  the  principle  of  sharing  the 
common  expense — for  there  is  no  taxation — is  the  ability  to 
satisfy  private  wants,  or  rather  to  provide  the  means  for  their 
satisfaction.  But  more  strictly,  the  principle  is  that  of 
economic  benefits,  the  contribution  of  each  being  propor- 
tioned to  the  actual  use  made  of  the  economic  opportunities 
afforded  by  the  government. 

Upon  the  assumption  of  the  sociaHstic  conception  of  the 
state  this  conclusion  cannot  be  gainsaid.  It  is  logical  and 
just.  But  there  is  not  the  same  theoretical  justice  in  the 
distribution  of  the  burden  upon  the  basis  of  the  "labor- 
time"  theory  of  Marx,  since  those  having  less  than  the 
average  capacity  of  production  are  credited  with  more  than 
they  actually  contribute,  while  those  having  a  capacity  above 
the  average  are  credited  with  less  than  they  actually  con- 
tribute. The  former  receive  benefits  that  are  in  excess  of 
their  power  of  production,  and  so  of  their  contribution  to  the 
common  fund ;   the  latter  receive  benefits  that  are  less  than 


,10  JUSTICE  IN  TAXATION  [446 

their  product,  or  their  contribution.  On  the  other  hand, 
with  no  type  of  collectivism  is  there  any  exemption  allowed 
for  those  who  are  capable  of  producing,  but  only  for  the 
incapables — the  physical  or  mental  incapables.  Those  who 
are  able  to  produce  must  do  so  or  starve,  and  must  therefore 
contribute  to  the  common  burden  in  the  same  proportion 
that  they  satisfy  their  own  economic  wants,  whether  or  not 
these  wants  are  satisfied  according  to  the  ability  of  the 
individual,  or  the  average  ability  of  individuals.  So  that 
from  this  point  of  view  the  contribution  may  be  regarded  as 
based  upon  the  abihty  of  the  individual  as  measured  by 
actual  product,  or  by  the  average  ability  of  individuals  as 
measured  by  their  average  product.  That  is,  the  ability  is 
determined  by  the  power  of  production,  and  not  by  the 
necessities  of  consumption  ;  and  therefore  there  can  logically 
be  no  exemption  based  upon  the  needs  of  the  individual, 
apart  from  his  incapacity. 

If  we  consider  this  theory  of  public  contributions  from  the 
point  of  view  of  benefits,  we  find  that  it  is  defective  in  that  it 
confines  benefits  to  the  purely  economic  benefit  of  equal 
opportunities  for  production ;  and  if  we  regard  it  from  the 
point  of  view  of  ability  we  find  it  defective  in  so  far  as  it 
confines  ability  to  the  ability  to  produce.  But  the  real 
defect  of  the  socialistic  system  of  taxation,  if  we  may  be  per- 
mitted to  use  the  term,  lies  in  its  fundamental  conception  of 
a  purely  economic  state,  and  in  its  conception  of  justice 
as  consisting  solely  in  the  economic  equality  of  opportunity. 
Its  important  lesson  is,  perhaps,  its  emphasis  upon  the  social 
character  of  production,  upon  the  joint  interest  of  the  mem- 
bers and  of  the  collective  whole  of  society  in  the  social  pro- 
duct, and  upon  the  joint  responsibility  in  the  maintenance 
of  the  government.  But  it  views  the  relations  of  the  individ- 
uals to  each  other  and  to  the  state  too  entirely  from  an  eco- 
nomic point  of  view,  and,  indeed,  from  the  point  of  view  of 
production  alone. 


44?]  POLITICAL  BASIS  AND  PRINCIPLES  m 

With  respect  to  the  principles  of  taxation  state  and  Kath- 
eder  socialism  are  not  essentially  socialistic,  as  they  would 
not  wholly  convert  the  political  into  the  industrial  state,  nor 
equalize  the  burdens  of  government  by  equalizing  the  oppor- 
tunities of  production.  They  are  specially  characterized  by 
the  emphasis  they  give  to  the  ethical  side  of  social  life,  from 
which  they  justly  deduce  as  a  principle  of  taxation  the  ability 
of  the  individual  to  pay ;  and  hence  also  are  given  a  wider 
range  in  considering  the  problem  of  exemptions.  The  social 
side  of  their  theory — the  distribution  of  wealth — is  a  prob- 
lem of  political  policy,  and  not  of  taxation." 

V.  Conclusions  as  to  True  Political  Basis  and 
Principles  of  Taxation. 

In  the  preceding  discussion  of  political  theories  relative  to 
a  political  basis  of  taxation,  we  have  attempted  to  touch  only 
upon  such  theories  as  have  exercised  the  greatest  influence, 
either  theoretical  or  practical,  in  matters  of  taxation,  together 
with  a  brief  reference  to  social  theories  that  antagonize  the 
existing  state.  Of  the  latter  class  we  found  that  while  they 
contain  important  truths,  they  are  but  half-truths  at  the 
best ;  and  further,  their  lessons  have  little  practical  signifi- 
cance since  they  have  not  to  do  with  actual  conditions,  but 
with  ideals  whose  consummation  must  wait  for  the  dawn  of 
the  millennium.  Or  again,  they  make  false  appHcations  of 
principles  that  are  true  in  themselves. 

In  the  theories  of  the  first  class  many  important  truths 
were  also  found,  but  we  were  unable  to  find  in  any  of  them 
a  consistent  and  logical  development  of  principles  directly 
deducible  from  the  political  basis  that  formed  their  primary 
assumptions.  Besides  a  lack  of  logical  development  we 
found,  also,  an  omission  of  important  factors  in  the  problem. 
But  what  to  our  mind  constitutes  their  fundamental  defect,  is 

^  Cf.  Vocke,  Die  Ab^abtn,  Auflagen  und  die  Steuern,  p.  476. 


112  JUSTICE  IN  TAXATION  [44^ 

their  conception  of  the  nature  and  purpose  of  the  state  in  its 
relation  to  the  individual ;  together  also  with  a  deduction  of 
principles  from  the  immediate  functions  of  government  in- 
stead of  from  the  ultimate  ends  of  the  state. 

The  political  basis  of  taxation  is  simply  a  conception,  or 
theory,  of  the  state  in  which  is  found  the  justification  and 
character  of  taxation,  and  from  which  principles  of  taxation 
logically  and  naturally  flow.     Such  a  theory  must  compre- 
hend not  only  the  nature  and  end  of  the  state,  but  also  the 
nature  and  end  of  the  individual,  as  person,  since  each  is  the 
counterpart  of  the  other  and  by  itself  is  but  an  abstraction. 
/       But  man,  as  an  end  in  himself,  is  essentially  and  fundamen- 
/        tally  ethical,  and    hence  principles  that  govern  taxation,  as 
;         also  all  social  relations,  should  conform  to  ethical  standards 
,i  and    ideals,  and  at  the  same  time  should  conform  to  the 

political  conception  upon  which  they  are  based. 

The  theory  of  the  state  outlined  in  the  preceding  chapter, 
it  is  believed,  answers  these  requirements.  It  recognizes 
the  obligation  of  the  individual  and  the  rights  of  the  state, 
the  voluntary  and  the  compulsory  character  of  taxation ;  it 
recognizes  the  universal  dependence  upon  the  state  for  the 
highest  individual  development,  and  thereby  inculcates  the 
principle  of  "  universality  "  in  taxation ;  it  recognizes  the 
ethical  nature  of  the  individual  and  the  ethical  nature  of 
social  relations,  and  thereby  inculcates  the  principle  of 
equity,  or  "equality"  in  taxation  as  its  highest  principle. 
These,  Universality  and  Equality,  are,  in  fact,  the  cardinal 
principles  of  taxation  deducible  from  a  political  basis — from 
a  true  theory  of  the  state — and  may,  therefore,  be  called  the 
political  principles  of  taxation.  All  other  principles  are  but 
modifications  of  these.  These  two  principles,  indeed,  are» 
with  greater  or  less  logic,  found  in  all  theories  of  taxation, 
but  all  theories  do  not  find  a  sufficient  basis  in  their  concep- 
tion of  the  state  for  the  modification,  of  these  principles  that 


449  POLITICAL  BASIS  AND  PRINCIPLES  113 

are  necessitated  by  economic  and  ethical  considerations.  A 
basis  for  the  modification  and  limitation  of  these  principles 
is,  however,  to  be  found  in  the  theory  of  the  state  that  we 
have  upheld  as  the  basis  for  all  principles  of  taxation.  The 
cardinal  principles  are  in  themselves  abstract  and  general  in 
character,  and  result  from  the  viewpoint  of  the  general  rela- 
tion of  the  individual  to  the  state.  But  in  their  concrete 
application  the  actual  conditions  of  life,  with  reference  to 
ethical  aims  and  standards,  must  be  considered,  the  neces- 
sity of  this  consideration  resulting  from  the  ethical  nature  of 
the  individual  and  the  state,  such  as  we  have  conceived 
them  to  be.  In  brief,  the  modifications  of  the  two  primary 
principles,  universality  and  equality,  no  less  than  the  princi- 
ples themselves,  are,  as  they  must  be  in  every  consistent 
theory,  the  necessary  implications  of  the  conception  of  the 
state,  and  result  naturally  from  the  logical  development  of 
these  implications.  The  main  problem,  now,  is  to  deter- 
mine the  basis  and  character  of  the  equality,  and  the  limita- 
tions that  are  to  be  put  upon  the  principle  of  universality. 
These  can  not  be  determined  by  the  purely  political  aspect 
of  the  question,  but  only  by  the  economic  and  ethical 
aspects.  These  aspects  we  shall  consider  in  the  two  follow- 
ing chapters. 


CHAPTER  V 

THE  ECONOMIC  BASIS  AND  PRINCIPLES  OF  TAXATION 

As  a  theory  of  the  state  implies  taxation,  so  taxation  im- 
plies the  economic  relation  of  the  individual  to  the  state. 
A  political  basis  and  political  principles  of  taxation  imply, 
therefore,  an  economic  basis  and  economic  principles.  By 
an  economic  basis,  then,  is  understood  the  economic  relation 
that  the  individual  sustains  to  the  state;  and  by  economic 
principles  the  principles  that  should  determine  the  portion 
of  private  wealth  that  each  individual  should  contribute  to 
the  ends  of  the  state,  or  the  relative  satisfaction  of  private 
and  collective  needs.  The  question  is  not  directly  con- 
cerned with  the  economic  effects  of  taxation,  although  these 
effects  are  indirectly  involved.  The  economic  basis  and 
principles  of  taxation  are,  in  part,  an  interpretation,  and,  in 
part,  a  modification  of  the  political  basis  and  political 
principles. 

The  economic  aspect  of  the  question  is  not,  therefore,  an 
independent  problem,  but  simply  one  phase  of  the  problem 
of  taxation,  though,  indeed,  a  very  important  phase.  In- 
deed, its  importance  has  led  some  economists  to  consider 
the  question  of  taxation  as  though  it  were  wholly  an  econ- 
omic one,  to  be  determined  by  the  simple  application  of 
economic  laws.  Taxation  is  treated  as  though  only  the 
economic  relations  of  individuals  to  the  state  were  involved. 
In  the  political  basis  they  see  only  an  economic  basis,  and  in 
the  political  principles  only  economic  principles.  Indeed,  it 
is  expressly  or  tacitly  implied  by  them  that  the  application  of 
114  [450 


45  I  ]  ECONOMIC  BASIS  AND  PRINCIPLES  115 

economic  principles  and  laws  will  in  all  cases  best  attain  the 
ends  of  justice.  Taken  by  itself,  however,  this  is  but  a  super- 
ficial view  of  the  problem.  For,  in  the  taking  of  economic 
values  for  its  support  and  maintenance — the  execution  of  its 
functions — the  state,  through  its  government,  enters  into  a 
most  vital  relation  with  the  individual ;  since  the  source  of 
the  economic  values  taken  by  the  state  is  likewise  the  source 
of  those  values  that  go  to  the  maintenance  of  life,  and  of  the 
material  conditions  that  are  necessary  to  the  development  of 
human  personality.  This  vital  relation,  then,  is  something 
more  than  an  economic  one.  Because  it  relates  to  2i  person, 
and  so  to  an  ethical  being,  it  has  ethical  as  well  as  economic 
importance. 

However,  there  is  an  economic  side  to  the  question  which 
may  be  abstracted  from  other  relations,  just  as  in  a  theory 
of  knowledge  sensation,  perception,  judgment,  etc.,  may  be 
abstracted  from  the  unified  process  that  alone  makes  knowl- 
edge possible.  The  state  must  ultimately  determine,  as  it  is 
ultimately  responsible  for,  the  amount  of  those  values  that 
are  diverted  from  the  satisfaction  of  private  wants  to  the 
satisfaction  of  collective  wants — the  needs  of  the  government.  _ 
It  is,  therefore,  important  that  there  should  be  a  definite  un- 
derstanding of  the  economic  basis  and  economic  principles 
that  should  control  this  distribution. 

In  the  present  chapter  we  shall  attempt  to  consider  this 
economic  aspect  of  the  question  of  taxation.  In  doing  so  we 
shall  not  only  review  such  theories  as  would  solve  the  prob- 
lem wholly  along  economic  lines,  but  shall  consider  the 
economic  side  of  other  theories.  As  these  theories  differ, 
in  the  main,  according  to  different  conceptions  of  the  char- 
acter and  importance  of  different  departments  of  economics 
— as  Production,  Distribution,  Exchange  and  Consumption; 
or  according  to  different  conceptions  of  economic  theory  and 
economic  laws,  we  shall  consider  the  subject   under  these 


1,6  JUSTICE  IN  TAXATION  [452 

several  heads,    using    different    economic   theories  as  main 
divisions. 

I.  The  Physiocrats  and  the  Single  Takers. 

It  was  the  theory  of  the  first  school  of  scientific  economists 
— the  Physiocrats — and  is  the  theory  of  their  modern  repre- 
sentatives— the  Single  Taxers — that  the  whole  expense  of 
government  should  be  met  out  of  the  proceeds  from  the 
land,  from  the  proditit  net  or  the  "economic  rent."  Let  us 
attempt  to  ascertain  the  economic  basis  and  the  economic 
principles  underlying  this  theory.  Although  they  reach 
practically  the  same  result  we  shall  find  that  the  earlier  and 
the  later  representatives  of  this  theory  employ  somewhat  dif- 
ferent lines  of  argument. 

I.  The  Physiocrats.  According  to  the  doctrine  of  the 
Physiocrats  land  alone  produces  2.  prodidt  net,  a  net  surplus 
above  the  expenses  of  production ;  therefore  upon  whatever 
form  of  property  or  income  a  tax  may  be  imposed  its  ulti- 
mate incidence  must  be  upon  this  produit  net,  as  otherwise 
production  must  cease  and  starvation  follow.  Hence,  to 
avoid  unnecessary  expenses  of  collection  and  added  costs 
due  to  the  advancement  of  the  taxes,  all  taxes  should  be 
imposed  in  the  first  instance  upon  the  landed  proprietors.* 
Moreover,  as  only  the  proprietors  of  land  obtain  a  net  pro- 
duct, they  are  the  only  class  that  has  any  interest  in  a  stable 
government.  Indeed,  a  net  product  and  a  stable  govern- 
ment mutually  condition  each  other.  For  "without  good 
government  and  tranquility  there  will  be  no  net  product,, 
and  without  a  net  product  no  government  and  no  society."" 
Security  and  tranquility  increase  the  revenue  of  each. 
Because,  therefore,  of  the  mutual  interest  and  mutual  de- 
pendence of  proprietors  and  the  government  they  should 
share  about  equally  in  the  net  product.^ 

^  Cf.  Turgot,  Works,  vol.  iv,  p.  306. 

«  Quesnay,  Despotume  de  la  Chine,  ch.  8,  sec.  20.  '  Cf.  Quesnay,  Ibid. 


453]  ECONOMIC  BASIS  AND  PRINCIPLES  u; 

The  doctrine  of  a  produit  net  as  applied  to  taxation  is 
most  fully  developed  by  Turgot  who  assigns  several  reasons 
for  a  single  tax  on  land.  His  argument  we  may  summarize 
as  follows :  The  object  of  a  tax  "  is  for  the  preservation  of 
property,  not  to  lose  it, — and  hence  should  be  upon  income, 
not  upon  property;"^  but  "the  proprietor  of  land  is  the 
only  one  who  has  a  true  income" — 2i produit  net — and  there- 
fore "  he  alone  has  an  interest  in  preserving  the  permanent 
order  of  society,"  for  to  the  industrial  class  any  change  of 
ownership  would  be  but  a  change  of  employers.'  The  tax_ 
should,  therefore,  be  paid  out  of^ the  "true  income."  and  to 
force  it  from  any  other  income,  or  to  make  it  exceed  this 
income,  would  check  production  'and  so  dry  up  the  source 
of  the  revenue  of  the  state.3  Moreover,  any  other  tax  is 
always  shifted  to  the  proprietor  by  being  added  to  the  cost 
of  production  ;'•  and  to  cause  the  laboring  and  industrial 
classes  to  advance  the  tax  is  to  produce  their  ruin,  since 
they  have  no  disposable  income.^  On  the  other  hand,  "  it 
is  impossible  to  make  the  consumers,  who  are  not  pro- 
prietors, pay  a  tax  upon  consumption,  because  from  the 
moment  it  is  established  they  are  forced  either  to  restrain 
their  consumption  or  to  diminish  the  price  which  they  can 
offer  for  the  production  which  they  consume ;  and  because 
either  method  will  throw  the  tax  upon  the  producers,  or 
sellers,  of  those  productions."^  Finally,  a  single  tax  on  the 
produce  of  land  is  demanded  because  an  indirect  tax — that 
is,  any  tax  except  that  upon  the  produit  net — leads  to  frauds, 
condemnation  of  goods,  loss  of  the  labor  of  the  great  num- 
ber of  men  who  are  necessary  to  collect  it,  a  war  of  the 
government  with  its  subjects,  a  disproportion  between  crime 
and  punishment,  and  "  attacks  liberty  in  a  thousand  ways."' 

Thus  we  find  that  according  to  the  doctrine  of  the  Physio- 

'  Turgot,  Works,  vol.  iv,  p.  215.  *  Ibid.,  p.  216.  *  Ibid.,  p.  220. 

♦  Ibid.,  p.  306.  » Ibid.,  p.  313.  » Ibid.,  p.  363.  ^  Ibid.,  p.  208. 


Il8  JUSTICE  IN  TAXATION  [454 

crats  the  economic  basis  of  taxation  lies  in  the  relation 
which  a  certain  class  of  society  sustains  to  the  government. 
This  class  is  that  of  the  landed  proprietors  who  alone  can 
have  any  interest  in  the  government,  since  land  alone  pro- 
duces a  net  product  over  and  above  that  which  is  necessary  in 
order  that  there  may  be  any  production  at  all.  But  as  the 
net  product  that  attaches  to  land  would  not  exist  but  for  the 
government,  the  landlord  should  share  it  with  the  government 
in  the  form  of  a  tax.  Not  only  has  no  other  class  any  in- 
terest in  the  government,  but  the  net  product  of  land  is  the 
only  fund  out  of  which  a  tax  can  ultimately  be  paid.  As  the 
net  product  is  equally  conditioned  by  landlords  and  the  gov- 
ernment we  have,  further,  as  the  principle  of  its  distribution, 
as  the  economic  principle  of  taxation,  that  the  net  product 
should  be  distributed  equally  between  landlords  and  the 
government.  Or,  as  the  basis  of  the  tax  is  the  economic 
interest  which  the  proprietors  of  land  have  in  the  govern- 
ment, the  principle  of  its  distribution  is  the  extent  of  the  in- 
terest in  the  joint  economic  result — the  produit  net — which 
is  assumed  to  be  a  half  interest. 

Criticism  of  this  theory  may  be  brief.  Not  only  is  its 
theory  of  incidence  utterly  erroneous,'  but  so  also  is  its 
theory  of  a  net  product^  upon  which  its  theory  of  taxation 
rests.  Other  factors  of  production  than  land  yield  a  net 
product  upon  which  a  tax  may  ultimately  fall,  and  which  is 
equally  with  the  net  product  from  land  conditioned  by  the 
existence  of  government.  It  follows,  therefore,  even  from 
the  view-point  of  the  Physiocrats,  that  other  classes  than  land- 
lords have  an  interest  in  the  government,  and  that  the  gov- 
ernment has  interest  in  other  products  than  the  net  product 
from  land.  Moreover,  because  a  government  is  a  condition 
of  a  net  product,  or  for  that  matter  of  any  product,  it  does 

*  See,  for  example,  Hume,  Essay  on  Taxes. 

*  See  Adam  Smith,  Wealth  of  Nations,  bk.  iv,  ch.  9. 


455]  ECONOMIC  BASIS  AND  PRINCIPLES  119 

not  follow  that  the  product  must  be  distributed  between  the 
producer  and  the  government  on  the  basis  of  the  share  of 
each  in  its  production.  Indeed,  if  this  were  so  the  govern- 
ment might  claim  the  whole  product  beyond  the  barest 
necessities  of  life.  Because  a  government  conditions  pro- 
duction it  is  not  therefore  a  factor  in  production  in  the  sense 
that  it  should  share  in  the  product  in  proportion  to  its  inter- 
est in  it.  The  fact  is  that  the  income  of  government  bears 
no  relation  whatever  to  its  part  in  production.  Its  income, 
and  therefore  taxation,  depends  upon  its  character  and  upon 
the  functions  it  assumes.  And  whether  or  not  a  tax  should 
be  determined  according  to  the  principle  of  interests,  it  cer- 
tainly is  not  to  be  determined  by  any  joint  interest  in  a» 
economic  product.  But  above  all,  government  does  some- 
thing more  than  condition  production.  It  is  the  condition 
of  the  satisfaction  of  all  of  our  wants,  and  therefore  interest 
in  it  is  general  and  not  special ;  and  for  the  maintenance  of 
these  general  interests — the  interests  of  civilized  life — gov- 
ernment requires  economic  support  from  every  citizen  of 
the  state. 

2.  The  Single  Taxers. — The  doctrine  that  the  whole  ex- 
pense of  government  should  be  met  by  a  single  tax  on  land 
was  revived  in  more  recent  years  by  Henry  George '  whose 
doctrine  is  now  known  as  that  of  the  "single  tax."  By  its 
modern  advocates,  however,  the  argument  for  a  single  tax 
takes  on  a  somewhat  different  form  from  that  of  the  Physio- 
crats. By  George  and  his  followers  the  justice  of  a  single 
tax  rests  upon  the  Ricardian  theory  of  rent ;  only  emphasis 
is  given  to  the  social  factor  as  producing  differential  advan- 
tages that  give  rise  to  the  phenomenon  of  rent,  quite  as 
much  as  do  differences  in  natural  advantages.  This  rent  is 
akin  to  the  prodiiit  net  and  is  called  the  nnearned  increment 
of  land.     But  land  is  the  birthright  of  man,  a  "  gratuitous 

•  Henry  Q&oxg<t,  Progress  and  Poverty,  1880. 


I20  JUSTICE  IN  TAXATION  [456 

gift  of  Nature  to  men,  the  free  bounty  of  the  Creator  to  his 
children." '  Therefore,  the  unearned  increment  from  land, 
the  whole  increment  that  is  not  produced  by  the  labor  of  any 
given  individual,  belongs  to  mankind,  to  society,  and  should 
not  be  monopolized  by  any  one  or  several  individuals.' 
Indeed,  the  government  has  a  double  claim  upon  the  un- 
earned increment :  both  because  the  land  belongs  to  society, 
and  because  a  part,  at  least,  of  the  unearned  increment  is 
due  to  society,  or  is  produced  by  it.  Moreover,  government 
.has  no  right  to  touch  any  part  of  the  increment  of  produc- 
tion that  is  due  to  human  labor,  since  by  "  natural  law"  the 
product  of  one's  own  labor  belongs  to  himself.  "  Whatever 
a  man  brings  forth,  whatever  he  adds  to  the  common  stock 
of  wealth,  belongs  to  him  alone ;  and  it  is  wrong  to  take 
from  him  any  part  of  it."  3 

According  to  this  view  of  the  single  tax,  there  is  in  reality 
no  taxation,  as  the  government  simply  appropir[ates  to  itself 
the  wealth  accruing  from  natural  advantages  and  from  social 
growth — wealth  to  which  the  individual  has  no  valid  claim, 
but  which  of  right  belongs  to  the  people  as  a  whole,  that  is, 
to  their  government.  But  as  the  U7iearned  increment  comes 
first  into  the  hands  of  individuals — the  landlords — the  taking 
of  it  from  them  by  the  government  maybe  regarded  as  nom- 
inal taxation,  the  landlords  being  the  natural  tax  collectors.* 
The  economic  basis  of  the  tax  thus  comes  to  be  the  relation 
subsisting  between  the  government  and  the  individual  aris- 
ing from  the  possession  on  the  one  side,  and  the  ownership 
on  the  other  side,  of  the  source  of  unearned  increment. 

As  the  privilege  of  possessing  the  source  of  the  unearned 
increment  is  regarded  as  an  advantage  to  its  possessor,  it  is 
laid  down  as  a  principle  of  taxation,  that  "  we  ought  to  tax 

*  George,  Single  Tax  Discussion,  p.  76,  Saratoga,  1890. 
-«  C/:, /<5iV.,  p.  83.  '/bid.,^.^(). 

*See  ?>htz.vaiaM\,  Natural  Taxation,  pp.  Ii8-g. 


457]  ECONOMIC  BASIS  AND  PRINCIPLES  i2l 

men  according  to  the  special  advantages  they  receive  from 
the  community,  thus  putting  all  men  on  an  equal  plane."' 
This  is  the  principle  of  taxation  according  to  benefits,  and  is 
<:ommon  to  all  "  single  taxers,"  who  repudiate  the  principle 
of  ability  as  unjust  or  as  an  appeal  "  to  sentiments  of  benevo- 
lence and  philanthropy."^  The  principle  is  purely  an  eco- 
nomic one,  as  the  "  advantage"  is  measured  by  "  the  market 
value  of  the  benefits  conferred  by  government  and  by  human 
society,"  3  the  market  value  of  ground  rent.  As  the  benefit 
is  measured  by  the  extent  of  the  ground  rent,  and  is  "  con- 
ferred by  government  and  by  human  society,"  the  tax, 
according  to  George,  should  absorb  the  whole  increment  of 
Jajid^hatJsjioXdk:eJqJiumaj^^  but  Shearman,  assum- 

ing that  such  a  tax  would  be  in  excess  of  the  needs  of  govern- 
ment, less  consistently  holds  that  the  government  should  take 
only  such  part  of  the  ground  rent  as  it  needs,  leaving  the 
rest  to  the  landlords.-*  >If,  indeed,  it  is  true  that  the  whole 
ground  rent,  the  unearned  increment,  belongs  of  right  to  the 
government,  it  is  difificult  to  see  the  justice  of  any  part  of  it 
being  retained  by  any  class  of  society.  The  only  just 
method  of  distributing  the  surplus  would  be  to  distribute  it 
pro  rata  to  every  member  of  society. 

That  the  doctrine  of  the  "single  tax"  has  the  merit  of 
simplicity  cannot  be  doubted,  nor  that  it  contains  some  de- 
sirable features.5  We  must,  however,  discredit  its  claim  as  a 
panacea  for  all  social  ills,  as  the  fanciful  dream  of  an  enthu- 

^  George,  Shigle  Tax  Discussion,  p.  83.  "  There  can  be  but  one  strictly  just 
basis  of  taxation,  and  that  is  the  basis  of  benefit  received  from  the  taxing  power;" 
Shearman,  op.  cit..  p.  228. 

*  George,  Ibid.,  p.  82,  and  Shearman,  Ibid.,  p.  227. 
'Shearman,  Ibid.,  p.  229. 

*  Cf.  Shearman,  op.  cit.,  pp.  132-135;   and  also  ch.  10. 

*  See  Prof,  J.  B.  Clark,  Single  Tax  Discussion,  p.  5. 


122  JUSTICE  IN  TAXATION  [458 

siast.'  Nor  can  we  grant  that  the  "  single  tax,"  as  a  theory 
of  taxation,  solves  the  problem  of  justice.  Granting  the 
validity  of  the  theory  of  social  values,  aud  assuming  its  suffi- 
ciency for  purposes  of  public  revenue,  we  would  still  have 
the  following  criticisms  to  offer  to  the  theory,  as  a  theory  of 
taxation : 

(i)  It  assumes  as  an  economic  basis  for  taxation,  that 
only  one  class  in  society  bears  such  an  economic  relation  to 
the  state  that  there  rests  upon  it  the  obligation  to  support 
the  government,  to  pay  taxes,  to  wit:  the  proprietors  of 
land ;  whereas,  in  point  of  fact,  the  economic  relation  and 
the  consequent  obligation  rest  upon  every  class  of  society, 
upon  every  citizen  of  the  state.  (2)  Not  only  does  the 
theory  assume  a  limited  economic  relation,  but  it  assumes  as 
the  basis  of  this  relation  that  land  alone  yields  an  unearned 
increment,  which,  while  it  belongs  to  society,  or  to  govern- 
ment, comes  in  the  first  instance  into  the  hands  of  the  pos- 
sessors of  land ;  whereas,  land  is  not  the  only  source  of  an 
unearned  increment — a  rent  or  a  qitasi-rGini — that  arises 
from  social  conditions,  and  therefore  the  rent  of  land  is  not 
the  only  wealth,  or  source  of  revenue,  which  comes  into  the 
hands  of  individuals,  but  which,  according  to  the  single  tax 
doctrine,  belongs  to  the  government.  Apart  from  the  ques- 
tion of  a  quasi-r&nt  in  other  factors  of  production  than  land,' 
there  are  legal  and  capitalistic  monopolies  that  produce 
unearned  increments  quite  as  much  as  does  the  monopoly 
of  land.  Moreover,  there  is  no  form  of  industry  that  is  not 
benefited  by  social  growth.  (3)  It  is  further  assumed  that 
the  advantages  of  government  lie  in  the  possession  of  the 
source  of  the  unearned  increment,  and  that  this  advantage 

^See  George,  Progress  and  Poveriy,  B.  ix,  ch.  4;  also,  Shearman,  ./Va/«ra/ 
Taxation,  ch.  13. 

*  On  this  point,  see  Marshall,  Principles,  B.  vi,  ch.  7;  and  Hobson,  Economics 
of  Distribution,  ch.  5. 


459]  ECONOMIC  BASIS  AND  PRINCIPLES  123 

is  the  only  ground  for  the  imposition  of  a  tax ;  and  therefore, 
that  a  tax  according  to  the  benefits  received  from  the  gov- 
ernment is   the   true   principle   of  taxation.     But   as   other 
factors  than  land  possess  these  advantages  (which  are  made 
the  basis  of  taxation)  it  is  difficult  to  see  by  what  justice  the 
possessor  of   land    alone   should    pay  for   the  advantage  of 
obtaining  an  unearned  increment.     Besides,  there  are  other 
economic   advantages   produced   by  the  state   that  equally 
demand   a  recompense — as   the   maintenance   of  the   social 
conditions  necessary  to  the  pursuit  of  a  livelihood.     More- 
over, in  assuming  that  the  unearned  increment  is  the  price 
of   a  special  advantage  it  is  assumed  that  the  advantage  is 
proportioned   to   the   amount   of  the   increment,  a  position 
whose  absurdity  is  at  once  seen  when  we  reflect  that  the 
ultimate  advantage  is  confined  to  the  privilege  of  gaining  a 
livelihood.     Then,    too,    this    privilege    is    common    to    all. 
More  than  this,  there  is  fn  reality  no  payment  for  any  special 
advantages,  as  the   government  simply  takes  the  unearned 
increment,  and  upon  this  the  landholder  has  no  claim.     (4) 
In  fact,  it  is  a  special  feature  of  this  theory  that  no  individual 
should  undergo  any  burden  of  sacrifice  for  the  purpose  of 
maintaining   a   government;   that,   indeed,   the   government 
has  no  right  to  touch  any  part  of  private  wealth  that  results 
from   one's   own    labor,   but   should   support    itself   on    the 
economic  values  that  belong  to  society  as  a  whole,  which  is 
to  assert  that  there  should   be  no  taxation.     But  such  an 
assumption   is   opposed   to    any  rational    conception  of   the 
nature   of   the   state,   and    misconceives   the   nature   of  the 
"  natural  right"  to  the  product  of  one's  own  labor,  since  the 
payment  of  a  portion  of  this  product  to  support  the  govern- 
ment is  a  condition  of  its  own  existence.     Yet,  in  the  first 
instance,  a  tax  is  imposed  upon  the  present  holders  of  land 
who  are  made  to  pay  penalty  for  the  sin  of  past  governments 
in  permitting  private  property  in  land — a  species  of  confisca- 


124  JUSTICE  IN  TAXATION  [460 

tion,  in  spite  of  all  refinements  upon  the  word,'  that  is  re- 
pugnant to  all  sense  of  justice. 

Various  other  forms  of  a  single  tax  have  been  promul- 
gated by  different  writers,  though  not  so  much  from  any 
peculiar  notion  respecting  the  relation  of  the  state  to  the 
economic  life  of  its  members  as  from  the  conviction  that  a 
single  tax  best  realizes  the  ideal  of  a  tax  according  to 
ability.  Such  theories  belong  to  the  discussion  of  systems 
of  taxation,  and  need  not  be  dwelt  upon  here.  There  is  one 
theory,  however,  that  may  be  briefly  touched  upon,  as  it 
assumes  a  certain  economic  relation  between  the  individual 
and  the  state  as  its  economic  basis.  I  refer  to  the  theory  of 
Menier,^  who  would  obtain  public  revenue  by  a  single  tax 
upon  capital. 

The  argument  of  Menier  is  as  follows:  Capital  is  a 
national  product  and  therefore  out  of  it  alone  should  the 
state  derive  its  income,  "  the  tax  representing  the  expense 
of  giving  value  to,  and  the  exploitation  of,  the  national 
capital."  Moreover,  since  the  state  exists  to  further  in- 
dividual liberty  and  human  personality — "the  enfranchise- 
ment of  the  individual"  3 — it  should  not  lay  any  tax  burden 
upon  the  individual  as  such.  "  The  tax,"  says  Menier, 
"  ought  not  to  know  man,  but  only  the  national  fortune. 
But  since  this  fortune  is  held  by  individuals  they  should  pay 
a  tax  in  proportion  to  what  they  hold."  ^ 

The  position  is  not  wholly  unlike  that  of  George,  since  he 
would  take  the  tax  out  of  the  national  capital  upon  which 
the  state  has  a  claim  because  exploited  by  itself,  the  princi- 
ple of  taxation  being  a  proportion  to  the  amount  of  the 
national  capital  individually  possessed,  no  tax  being  im- 
posed upon  the  individual,  as  such.     But  does   not  Menier 

'  See  Shearman,  op.  cit.,  p.  169. 

*  Theorie  et  Application  de  Plmpdi  sur  le  Capital. 

'  Op.  cit.,  p.  192.  *  Ibid.,  p.  196. 


46 1 ]  ECONOMIC  BASIS  AND  PRINCIPLES  125 

confuse  a  nominal  and  a  real  tax  on  capital,  thus  leading  to 
the  untenable  position  that  a  tax  on  capital  does  not,  while 
a  tax  on  income  or  other  form  of  wealth  does,  interfere  with 
individual  rights  and  individual  liberty?  Besides,  income 
quite  as  much  as  capital  is  a  national  product,  and  quite  as 
much  as  capital  is  given  value  by  the  government.  Not  the 
least  error  of  Menier,  however,  is  the  assumption  that  a  tax 
is  upon  property,  not  upon  the  person.  Only  persons  can 
have  a  responsible  relation  to  the  state,  or  be  under  obliga- 
tions for  its  support.  The  state,  it  is  true,  demands  prop- 
erty, that  is,  economic  goods,  but  the  demand  is  and  can  be 
only  upon  persons.  Then,  too,  Menier  falls  into  the  error 
of  supposing  that  one's  interest  in  the  government  and  obli- 
gation to  it  is  directly  proportional  to  the  amount  of  capital 
that  he  possesses. 

II.  The  Classical  School  of  Economists 

I,  The  Benefit  Theory  of  Taxation.  The  economic  basis 
of  the  classical  economists  rests  upon  their  theory  of  the 
state  as  the  protector  of  persons  and  property,  while  their 
principle  of  taxation  is  that  the  tax  should  be  proportioned 
to  the  benefits  derived  from  the  protection.  The  economic 
aspect  of  taxation,  in  short,  is  simply  the  economic  side  of 
their  political  doctrine.  Hence,  a  tax  is  regarded  as  an 
economic  return  for  a  presumably  measurable  benefit  re- 
ceived from  the  government.  This  conception  dififers  from 
that  of  the  Physiocrats  only  in  the  character  and  extent  of 
the  content  contained  in  the  idea  of  benefits.  Here  the  idea 
is  that  the  relation  of  the  state  to  the  individual  is  that  of  a 
protector  and  guarantor  of  liberty,  and  that  the  individual 
should  compensate  for  the  expense  of  this  protection  in  pro- 
portion to  the  benefits  derived  from  it.  It  is  an  economic 
relation  that  is  the  counterpart  of  the  Contract  theory  of  the 
state,  and  is  very  largely  an  outgrowth  of  it. 


126  JUSTICE  IN  TAXATION  [462 

According  to  this  view,  then,  a  tax  is  considered  as  the 
expense  of  protection,  while  the  value  of  the  protection  is 
measured  by  the  amount  of  property  protected.  This  is 
implied  in  the  famous  dictum  of  Montesquieu  :  that  taxes 
are  the  payment  of  a  part  of  one's  property  in  order  to 
enjoy  the  remainder  in  security.'  It  is  expressed  still  more 
explicitly  by  Adam  Smith,  whose  canon  has  become  classic 
on  principles  of  taxation.  Subjects,  he  says,  should  con- 
tribute to  the  support  of  government  "  in  proportion  to  the 
revenue  which  they  respectively  enjoy  under  the  protection 
of  the  state.  The  expense  of  government  to  the  individuals 
of  a  great  nation,  is  like  the  expense  of  management  to  the 
joint  tenants  of  a  great  estate,  who  are  all  obliged  to  con- 
tribute in  proportion  to  their  interests  in  the  estate."  '  True, 
this  conception  of  taxation  is  given  as  an  explanation  of  the 
meaning  of  "  ability,"  which  is  regarded  as  the  basic  prin- 
ciple. But  it  is  only  by  a  confusion  of  ideas,  or  an  incon- 
sistency of  thought,  that  the  principle  of  ability  can  be  con- 
nected with  the  protection  theory  of  the  state.  And  yet  this 
confusion  or  inconsistency  is  found  in  most  of  the  classical 
economists.  Its  most  extreme  type  is,  perhaps,  found  in 
Murhard,  who  bases  the  tax  upon  the  protection  of  property ,3 
yet  would  proportion  the  tax  to  "ability,"*  expressly  re- 
pudiating a  tax  proportioned  to  the  amount  of  income 
enjoying  the  protection. 5 

Such,  in  the  main,  is  the  view  of  most  writers  of  this 
school,  some,  like  Murhard,  emphasizing  the  protection  of 

*  Montesquieu,  Esprit  des  Lois,  ch.  I. 

*  Smith,  Wealth  0/ Amotions, -p^.^i/^-^  (Rogers' edition). 

' "  Steuern  werden  bezahlt  zum   Schutze  des  Eigenthums.    Darum,  und  nur 
darum  gebe  Ich  Steuern."    Murhard,  Theorie  und  Polilik  der  Besteureung,  p.  2P> 

*  For  taxes  are  "  am  gUicklicbsten  gewahlt,  wo  jeder  Staatsgenosse  im  Verhaltniss 
Seiner  Krafte  zu  den  Staats-Aufgaben  beitragt."     Ibid.,  p.  80. 

»  Cf.  ibid.,  p.  26. 


463 J  ECONOMIC  BASIS  AND  PRINCIPLES  127 

property,  others,  like  Sismondi,  emphasizing  the  protection 
of  persons.'  From  the  point  of  view  of  consistency,  how- 
ever, Von  Hock  makes  a  distinct  advance,  since  he  not  only 
recognizes  the  protection  of  both  persons  and  property,  but 
would  have  an  equal  tax  for  the  former  and  a  tax  proportional 
to  the  benefits  of  protection  for  the  latter.'-'  Like  Sismondi, 
too,  he  places  the  question  squarely  upon  an  economic 
ground,  making  the  tax  a  compensation  for  the  services 
received  from  the  state.3  Yet  in  the  hands  of  Von  Hock  the 
protection  principle  loses  much  of  its  character,  as,  indeed, 
it  does  also  with  Sismondi,  since  the  term  is  made  to  include 
practically  all  that  is  contained  in  the  idea  of  national  well- 
being  (das  Wohl  des  Volkes).  Protection,  with  such  an 
extended  conception  of  its  content,  loses,  too,  any  signifi- 
cance that  it  might  have  as  a  basis  of  taxation,  since  it  is 
incapable  of  giving  a  principle  that  is  consistent  with  itself, 
for  the  distribution  of  the  tax  burden. 

We  have  had  occasion  to  criticise  the  principle  of  benefits 
in  the  preceding  chapter.  As  afTording  an  economic  basis 
and  principles  it  is  even  more  defective  than  it  is  as  a  polit- 
ical principle.  To  have  any  validity  from  the  view-point  of 
economics  the  benefits  of  protection  must  have  a  definite 
assignable  value,  else  the  tax  cannot  be  a  compensation  for 
a  value  received.  From  the  point  of  view  of  the  protection 
of  persons  it  cannot  be  said  that  the  benefit  of  the  protection 
is  equal,  as  Von  Hock  assumes,  nor  that  the  benefits  from 

'  "  L'impot  doit  etre  considere  par  les  citoyens  comme  une  compensation  de  la 
protection  que  le  gouvernement  accorde  k  leurs  personnes  et  k  leurspropriet^s.  II 
est  juste  que  tous  le  supportent,  en  proportion  des  avantages  que  la  societe  leur 
garantit,  et  des  depenses  que  la  societe  fait  pour  eux."  Economie  Politique,  vol, 
II,  p.  155. 

'  Cf.  Von  Hock,  Die  offenilichen  Abgaben  und  Schulden,  §§  1-4. 

•"  Jeder  Abgabe  ist  eine  Vergeltung  der  vom  Staat  geleisteten  Dienste,  und 
erscheint  darum  nur  dann  gerechtfertigt,  wenn  der  Dienst  des  Lohns  werth  ist." 
Op,  cie.,  p.  4. 


128  JUSTICE  IN  TAXATION  [464 

the  protection  of  property  are  proportional  to  the  amount  of 
property  enjoying  the  protection,  as  most  upholders  of  this 
theory  maintain.  Still  less  is  it  possible  to  apportion  the 
tax  to  benefits  when,  as  with  Von  Hock  and  Sismondi,  bene- 
fits are  made  to  include  such  immaterial  qualities  as  honor^ 
glory,  education,  religion,  national  well-being,  etc.  But 
apart  from  the  impossibihty  of  determining  the  value  of  the 
benefits,  the  economic  relation  between  the  individual  and 
the  state  cannot  be  expressed  by  the  idea  of  compensation 
for  benefits  received.  Nor  is  this  due  simply  to  the  fact  that 
the  benefits  are  not  measurable  quantities.  The  falsity  of 
this  conception  rests  chiefiy  upon  the  fact  that  it  is  wholly 
out  of  harmony  with  the  social  relations  that  a  tax  involves. 
Indeed,  the  inadequacy  of  this  conception  would  seem  to  be 
felt  by  most  of  its  defenders,  since  they,  following  Adam 
Smith,  interpret  "benefits"  as  synonymous  with  "  ability." 
But  the  two  ideas  are  totally  distinct  and  mutually  exclude 
each  other.  As  Bastable  says  :  "  So  far  as  the  '  benefits  ' 
or  '  service '  principle  is  applied,  it  excludes  the  rule  of  tax- 
ation according  to  ability."  '  Most  writers,  however,  who 
accept  the  benefit  principle  (whether  or  not  they  make  it 
synonymous  with  ability)  find  a  measure  of  benefits  in  the 
assumption  that  the  benefits  of  government  are  proportional 
to  the  amount  of  property  enjoyed  or  consumed.  As  ex- 
pressed by  Sir  William  Petty :  "  Every  man  ought  to  con- 
tribute according  to  what  he  taketh  to  himself,  and  actually 
enjoyeth."  =  With  Petty  this  means,  as  with  Hobbes,  that 
the  benefit  is  proportional  to  what  one  consumes,  and  there- 
fore that  the  tax  should  be  a  proportional  tax  on  consump- 
tion. This,  too,  is  the  tendency  of  the  classical  economists, 
who  would  throw  every  safeguard  around  capital  and  pro- 

*  Bastable,  Fut/ic  Finance,  p.  389.     Gen.  Walker  and  Mile.  Royer,  also  of  the 
classical  school,  likewise  repudiate  the  "  benefit "  principle. 

*  Petty,  A  Treatise  of  Taxes  and  Contributions,  p.  83. 


465]  ECONOMIC  BASIS  AND  PRINCIPLES  129 

duction.  But  not  the  amount  of  property  that  one  possesses, 
and  still  less  what  one  consumes,  nor  any  other  portion 
of  income,  is  an  adequate  measure  of  the  benefits  of  govern- 
ment. Nor  is  the  claim  of  government  limited  to  any  por- 
tion of  income.  As  Gen.  Walker  has  well  said,  "  the  reve- 
nue rights  of  the  state  attach  equally  to  every  portion  of 
private  revenue,  irrespective  of  the  consideration  whether 
any  such  portion  is  to  be  spent  or  to  be  saved."  '  But  above 
all  this  view  of  the  economic  aspect  of  taxation  is  at  fault, 
because  it  assumes  a  relation  of  economic  equivalence  where 
no  such  equivalence  is  possible,  and  because  it  falsely  as- 
sumes that  such  an  equivalence  is  the  true  basis  and  measure 
of  the  tax. 

2.  The  Exchange  Theory.  The  same  in  principle  as  the 
theory  of  "  benefits,"  though  different  in  point  of  view,  is  the 
"  exchange  theory"  of  Bastiat  and  Perry.  Although  this 
view  of  the  tax  was  earlier  expressed  by  Senior  in  his  "  Po- 
litical Economy,"  with  Bastiat  and  Perry  it  was  made  a  part 
of  their  economic  theory,  the  collection  and  expenditure  of 
public  revenue  being  regarded  as  determined  by  the  same 
principles  of  exchange  that  determine  all  economic  ex- 
changes. 

The  theory  starts  with  the  principle  of  the  "  division  of 
labor."  '^  In  all  departments  of  economic  activities,  so  the 
argument  runs,  protection  is  required,  and  in  the  division  of 
labor  in  social  and  economic  life  the  function  of  protection  is 
assigned  to  the  government.  For_tiie_iLsefviee-". that- the 
govern m ent^perlornis-ia-proeuriTig  the  protec+ion-  every-.ecp- 
fiornic  activity  owes  an^ '^equivalents -service 4a-ex£liaage.. 
That_JSr--in  the  "division  of  labor,"  go vernnjent^perfoMiis 
_one_sei:yice^— protection — in,exx:iiaTige  for  another^ervice — 
contribirtionofjtaxes.     Or  taxation,  like  all  private  economic 

1  Francis  Walker,  "The  Bases  of  Taxation,"  in  Pol.  Sci.  Quart,  iii,  p.  II. 

*  Perry,  Political  Economy,  p.  516.     See  also,  Senior,  Political  Economy,  p.  74. 


130  JUSTICE  IN  TAXATION  [466 

activity,  finds  its  basis  and  its  principles  in  a  theory  of  ex- 
change of  equivalent  economic  services.  As  Perry  puts  it, 
taxation  "  finds  a  ready  and  solid  justification  in  the  com- 
mon principles  of  exchange."  Indeed,  "  taxes  demanded  of 
citizens  by  a  lawful  government  which  tolerably  performs  its 
functions,  are  legitimate  and  just  on  principles  of  exchange 
alone."  '  For  "  value  resides  in  services  exchanged ;  but 
government  is  an  essential  prerequisite  to  any  general 
and  satisfactory  exchanges,  since  it  contributes  by  direct 
effort  to  the  security  of  persons  and  property ;  and  justly 
claims,  therefore,  from  each  citizen  a  compensation  in  return 
for  services  thus  rendered  him.^""  The  same  thought  is  also 
expressed  by  Bastiat,  who  declares  that  when  a  state  renders 
a  service  equal  to  the  tax,  there  is  only  an  exchange  (il  n'y 
a  qu'un  ^change)  ;3  and  that  a  good  or  a  bad  use  is  made 
of  the  tax  according  as  the  service  of  the  state  is,  or  is  not, 
equivalent  to  what  the  public  gives  in  exchange — the  tax.^ 

In  other  words,  according  to  the  exchange  theory  of  tax- 
ation the  basis  of  the  tax  is  an  economic  "  exchange  of  ser- 
vices" betwen  the  government  and  the  taxpayer.  That  is, 
the  government  being  a  participating  factor  in  all  private 
exchanges,  it  should  find  compensation  for  its  "  service  "  by 
participating  in  the  gains  from  these  exchanges.  Or,  the 
*'  gains  "  accruing  to  individuals  because  of  the  service  of  the 
government  in  providing  protection  and  security,  the  indi- 
viduals should  share  their  gains  with  the  government  in  ex- 
change for  its  service.  And  from  these  assumptions  we  get 
as  a  principle  of  taxation  that  individuals  should  contribute 
to  the  cost  of  the  service  of  the  government  "  in  proportion 
to  the  gains  of  their  exchanges."  s 

*  Perry,  Political  Economy,  p.  516.  *  Ibid.,  p.  515. 

*  Bastiat,  Ce  qu^  on  voit  et  ce  qu^  on  ne  voit  pas, 

*  Bastiat,  Sophismes  Aconomiques,  Oeuvrcs,  iv,  p.  47  (Ed.  1863). 
•Perry,  <?/.«'/.,  p.  516. 


467]  ECONOMIC  BASIS  AND  PRINCIPLES  131 

• 

As  against  this  view  of  taxation  we  may  note  that  the 
state  cannot  be  conceived  of  as  simply  an  economic  agency 
in  exchange,  whose  "service"  in  the  exchange  is  to  be 
compensated  for  according  to  the  principles  of  private 
economic  exchanges.  Such  a  conception  expresses  neither 
the  relation  of  the  state  to  the  individual,  nor  that  of  the 
individual  to  the  state.  True,  the  state  does  perform  a  ser- 
vice for  the  individual  and  receives  taxes  from  the  individual, 
but  the  '*  service  "  and  the  tax  are  not  related  to  each  other 
in  the  way  of  an  economic  exchange.  Hence,  the  basis  of 
the  tax  is  not  to  be  found  in  the  idea  of  an  "  exchange  of 
service."  The  services  of  the  government  are  far  more  ex- 
tensive than  that  which  obtains  to  the  individual  from  the 
"  gains  of  exchanges."  And  if  the  basis  of  taxation  is  not 
to  be  found  in  the  idea  of  an  economic  change,  so  neither 
can  the  principles  of  taxation  be  expressed  in  terms  of  an 
economic  exchange.  ^ 

But  even  if  we  assume  the  fiction  of  an  exchange,  the 
character  of  the  "  exchange  of  service  "  between  the  govern- 
ment and  the  taxpayer  is  entirely  different  from  that  in- 
volved in  private  exchanges.  For  in  the  former  case,  how- 
ever voluntary  may  be  the  payment  of  taxes  in  the  abstract, 
there  is  a  compulsory  feature  in  the  exchange  that  does  not 
attach  to  private  exchanges,  which  are  wholly  voluntary. 
In  the  former  case,  too,  the  terms  of  the  exchange  are  made 
by  one  party  to  the  exchange — the  government ;  while  in 
the  latter  case  the  terms  of  the  exchange  are  mutually  de- 
termined through  the  operation  of  economic  laws — the  law 
of  '•  demand  and  supply,"  or,  if  you  will,  the  law  of  "  mar- 
ginal utility."  Finally,  in  the  former  case  the  normal  basis 
of  the  exchange  is  cost — cost  of  the  government  service ;  in 
the  latter  case  the  basis  of  the  exchange  is  the  value,  or 
"  utility,"  of  the  exchange  to  both  parties  to  the  exchange 
— the  basis   of  profits,   or  gains.     In   fact,   as   pointed  out 


132  JUSTICE  IN  TAXATION  [468 

by  Sax,'  between  the  two  types  of  exchange  there  is  only  a 
distant  similarity  (entfernte  Aehnlichkeit).  But  at  bottom 
there  is  nothing  new  in  this  theory  of  taxation,  except  in 
name  and  point  of  view.  In  reality  it  is  nothing  but  the  old 
benefit  theory  in  a  new  dress,  the  benefits  being  regarded  as 
measured  by  the  "  gains  of  exchanges,"  or  the  profits  of 
industry — a  limitation  as  inadequate  as  any  of  the  preced- 
ing. Thus,  the  exchange  theory  contains  all  the  defects  of 
the  benefit  theory  in  addition  to  those  mentioned  above ; 
not  the  least  being  the  absurdity  of  assuming  that  the  ser- 
vices of  the  state  and  the  taxes  are  economic  equivalents^ 
indeed,  as  Bastiat  says,  must  be. 

3.   Tke  Insurance  Theory.     A  somewhat    different  version 
of  the  "  benefit  theory"  is  found  in  the  "  insurance  theory" 
of  taxation.     The  most  noted   champion  of  this  theory  is 
Thiers,'  while  it  has  the  sanction  of   McCullochs    and  of  E. 
Peshine   Smith.^     It  is  closely  allied    to   the   "joint-stock" 
theory  of   Herbert  Spencer,5  vvhich  is  found,  also,  as  one  of 
the    contradictions    of    Adam    Smith.^     According   to    this 
theory  the   state   is  comparable  to  a  Joint-stock   Insurance 
Company,  whose  function  it  is  to  insure  security  of  life  and 
property.     Hence,  a  tax  rests  upon  the  same  basis  and  the 
same  principles  as  the  premium  of  an  insurance  company. 
"  As  government  renders  services  to  each  and  every  one  of 
its  constituents,"  says  E.  Peshine  Smith,  "  every  one  ought 
to  contribute  to  the  expense  of  its  maintenance  in  the  ratio 
that  he   receives   advantage.     It   gives  him   security  of  his 
person   and   his  property.     So   far  as   his   property  is   con- 
cerned, it  is  apparent  that  his  contribution  should  be  esti- 

1  Sax,  Grundlegung,  p.  54.  *  Thiers,  De  la  Propriite,  p.  355  et  seq. 

•McCuUoch,  Taxation  and  Funding,  T^.  17. 
*  E.  Peshine  Smith,  Political  Economy,  p.  264. 
•Spencer,  Social  Statics  (abridg.  ed.),p.  122. 
•Adam  Smith,  op.  cit.,  p.  415. 


469]  ECONOMIC  BASIS  AND  PRINCIPLES  133 

mated  as  it  would  be  by  a  private  insurance  company,  by 
the  amount  at  stake."  '  But  Mr,  Smith,  unHke  Thiers,  con- 
fines the  application  of  the  insurance  principle  to  property, 
rightly  admitting  the  impossibility  of  making  "  the  value  of 
personal  security  a  basis  for  taxation,"  since  "  the  value  of 
protection  to  the  person  is  incapable  of  estimation."  "^ 

But  a  moment's  reflection,  however,  is  necessary  to  con- 
vince us  that  the  whole  theory  is  even  more  false  than  the 
"  exchange  "  theory.  As  to  the  person,  not  only  is  it  im- 
possible to  estimate  the  value  of  the  protection — the  insur- 
ance— but  the  character  of  the  "  insurance  "  given  by  the 
state  is  entirely  different  from  that  given  by  a  private  insur- 
ance company ;  while  with  property,  though  its  value  is 
capable  of  estimation,  there  is  a  similar  difference  in  the 
character  of  the  insurance.  In  the  case  of  persons  the  state 
does  not  guarantee  a  monetary  compensation  in  case  of 
injury  or  loss  of  life,  as  does  an  insurance  company,  but 
contents  itself  with  punishing  the  aggressor  if  he  is  found; 
or,  at  best,  permits  you  to  use  its  courts  to  compel  com- 
pensation from  the  aggressor.  So,  likewise,  in  the  case 
of  property,  the  insurance  company  guarantees  to  make 
good  the  whole  of  the  insured  property  that  is  lost  or 
damaged,  but  the  state,  as  Leroy-Beaulieu  says,  "will  repair 
no  damages  made  either  by  natural  causes  or  by  man.  If  a 
thief  steals  your  property — the  state  will  pursue  the  thief, 
but  if  he  has  consumed  your  property  the  state  will  not 
restore  it."  ^ 

But  above  all,  it  is  not  true  that  the  conception  of  insur- 
ance rightly  expresses  the  nature  of  the  basis  of  taxation. 
To  quote  Leroy-Beaulieu  again,  "  The  attributes  of  the  state 
are  much  more  extensive  than  they  would  be  if  they  were 
confined  to  this  conception.*"     Equally  false  is  it  that  taxes 

'  Op.  eit.,  p.  264.  '  Op.  cit.,  pp.  264-5. 

*  Leroy-Beaulieu,    Traiti  de  la  Science  des  Finances,  p.  1 16.       *  Tbid.,  p.  115. 


134  JUSTICE  IN  TAXATION  [470 

are  distributed  on  the  same  principle  as  an  insurance 
premium.  The  premium  is  determined  not  only  "  by  the 
amount  at  stake,"  but  by  the  risk — by  the  probabilities  of 
life,  or  of  loss — in  each  individual  case ;  the  principle  of  tax 
distribution  is  determined  by  the  solidarity  of  interests  of 
the  whole  body  of  citizens,  without  regard  to  length  of  life 
or  the  insecurity  of  property, 

III.  The  Productive  Theory  of  Taxation. 

Conceiving  of  "  production  "  as  the  production,  by  indi- 
viduals, of  material,  exchangeable  goods,  and  looking  only 
at  the  direct  factors  engaged  in  production,  Adam  Smith 
held  that  all  consumption  of  economic  goods  that  is  not  di- 
rected to  further  production  is  "  unproductive  consumption." 
Hence  the  consumption  of  wealth  by  the  government,  in  the 
form  of  taxes,  is  unproductive  consumption.  In  this  Adam 
Smith  was  followed  by  most  of  the  early  economists  of  the 
classical  school.*  Bastiat  and  Perry,  however,  while  they 
regarded  the  government  as  a  necessary  evil,  assumed  that 
its  services  have  an  economic  value  in  exchange,  not  only 
with  relation  to  consumptive,  but  also  with  relation  to  pro- 
ductive goods.  But  it  remained  for  Wagner  and  Stein  to 
give  a  more  exact  appreciation  of  the  function  of  govern- 
ment in  production. 

According  to  Wagner  the  function  of  government  in  pro- 
duction is  to  transform  material  goods  (Sachgiiter)  in  the 
form  of  a  tax  into  immaterial  goods  (ofTentlichen  Einricht- 
ungen,  Dienstleistungen).  "Because  it  is  indispensable  to 
the  entire  economic  life,  and  for  all  private  activity  of 
individuals,  the  services  of  the  government  (Staat),  and 
therefore   the   government  itself,  must  be   regarded,  in   an 

^  According  to  Ricardo  taxes  may  affect  production  through  their  "tendency  to 
lessen  the  power  to  accumulate."  Works,  p.  88.  (McCulloch'i  edition.)  For 
views  of  McCulloch  and  others,  see  ante,  p.  43  and  notes. 


471]  ECONOMIC  BASIS  AND  PRINCIPLES  135 

economic  sense,  as  eminently  productive." '  So  likewise 
Stein,  who  held  more  to  the  classical  notion  of  the  import- 
ance of  production,  regarded  the  government' from  the  point 
of  view  of  its  indispensableness  to  the  building  up  of  capital 
(Kapitalbildungsprocess),  and  therefore  not  as  an  "  unproduc- 
tive consumer,"  but  as  an  indispensable  agent  in  production. 
"  In  fact,"  says  Stein,  "  all  services  and  payments  to  the  gov- 
ernment (Staat)  are,  economically  speaking,  nothing  else 
than  an  integral  part  of  the  cost  of  production  of  every  eco- 
nomic product."  =■  Therefore,  the  tax  that  goes  to  maintain 
the  government  is  simply  a  part  of  the  necessary  cost  of 
production. 

From  the  view-point  of  Wagner,  who  emphasizes  the 
social  side  of  production,  and  has  in  mind  the  totality  of  the 
factors  in  production,  without  distinguishing  the  pre-condi- 
tions from  the  immediate  factors,  the  government  is  viewed 
as  a  direct  agent  in  production,  and  therefore  the  tax  itself 
as  "eminently  productive."  From  the  view-point  of  Stein, 
on  the  other  hand,  who  regarded  production  more  from  the 
standpoint  of  the  individual,  who  emphasized  the  importance 
of  capital  and  capital  formation  (Kapitalbildung),  and  thought 
of  government  as  a  condition  precedent,  government  was 
considered  rather  as  an  indirect  than  a  direct  agent  in  pro- 
duction, and  the  tax  itself  as  "reproductive;"  and  repro- 
ductive in  the  sense  that  it  enables  the  government 
through  its  administration  to  maintain  the  conditions  of  cap- 
ital-building, and  "this  reproductivity  of  the  tax  is,  and  will 
remain,  the  absolute  condition  of  the  power  to  pay  taxes 
(Steuerkraft).  therefore  also  the  condition  of  taxes,  and  so 
of  civic  life  itself." 

But  although  different  in  point  of  view,  the  "productive" 
theory  of  Wagner  and  the  "  reproductive  "  theory  of  Stein 

^  Wagner,  op.  cit.,  i,  p.  13. 

•  Finanzwisietiichaft,  i,  p.  15.  •  Ihid.,  ii ,  p.  359. 


136  JUSTICE  IN  TAXATION  [472 

are  practically  one  and  the  same — a  productive  theory  that 
is  nothing  else  than  the  old  "  give-and-take  "  (Leistung  und 
Gegenleistung)  theory  of  taxation ;  or,  as  Sax  observes,  "  it 
is  a  correlate  of  the  "exchange  theory.'"'  But  the  field  of 
the  exchange  of  service  is  here  limited  to  the  process  of 
production,  or  to  capital  building.  Even  Wagner  notes  the 
parallel,  and  points  out  that  in  the  state  giving  services  for 
taxes  (Sachgiiter)  there  is  a  kind  of  an  exchange  (eine  Art 
Tausch),  but  that  the  conditions  of  the  exchange  are  fixed 
by  the  state.  "  Thus,  the  services  of  the  state  and  taxes," 
he  adds,  "  appear  as  correlates  of  each  other."  *  But  w^ith 
Wagner  the  exchange  is  not,  as  is  implied  in  the  exchange 
theory,  an  exchange  of  special  services ;  but  the  principle  of 
exchange  is  that  of  general  compensation  (generelle  Ent- 
geltlichkeit),  no  separate  reckoning  being  made  with  indi- 
viduals concerning  the  advantages  they  receive  from  the 
state." 3 

But  neither  Wagner  nor  Stein  makes  use  of  his  productive 
theory  to  furnish  a  basis  or  principles  of  taxation ;  further, 
at  least,  than  to  show  that  the  taxes  must  be  adequate  to  the 
needs  of  the  state,  and  the  services  of  the  state  equal  to  the 
taxes,  else  production  must  be  hampered  or  cease  entirely. 
Or,  as  is  implied  in  the  view-point  of  Stein,  taxes  must  be 
sufficient  to  enable  the  state  to  attain  its  highest  efificiency 
in  maintaining  the  conditions  of  production,  of  capital  build- 
ing, but  never  in  excess  of  the  value  of  the  services  of  the 
state  in  capital  building.  That  is,  they  must  be  high  enough 
to  maintain  that  degree  of  efficiency  on  the  part  of  the  state 
that  will  ensure  their  reproduction  in  capital,  else  capital 
building  must  cease,  and  thus  the  source  of  the  tax  is  anni- 
hilated, and  with  it  also  the  state  itself.*  But  with  Wagner 
the  productive  theory  lies  wholly  outside  of  the  principles  of 

*  Op.  cit.,  p.  92.  •  op.  «■/.,  i,  p.  523.  *  Ibid.,  i,  p.  14. 

*  Cf.  Stein,  op,  cit.,  ii,  p.  359. 


473]  ECONOMIC  BASIS  AND  PRINCIPLES  137 

private  economy,  his  conception  of  the  functions  of  govern- 
ment and  of  a  "general  compensation,"  without  individual 
reckoning  paving  the  way  to  his  social-political  conceptions, 
in  which  he  finds  both  the  basis  and  the  principles  of  taxa- 
tion. 

That,  however,  there  is  much  truth  in  the  productive 
theory  of  the  state  and  taxation,  that  the  state  is  a  conditio 
sine  qua  non  of  production,  is  not  to  be  doubted.  But  just 
because  it  is  this,  because  it  is  a  condition  precedent,  it  is 
not  a  directly  active  force  in  production.  A  condition  of 
production,  it  is  true ;  but  it  does  not  for  that  reason  per- 
form any  measurable  economic  service  in  production.  This 
Wagner  admits.'  Then,  too,  there  is  much  expenditure  by 
the  government  that  by  no  conceivable  hypothesis  could  be 
regarded  as  productive,  as  the  term  is  understood  by  either 
Wagner  or  Stein.^  Moreover,  this  conception  of  the  eco- 
nomic relations  involved  is  too  restricted  in  its  scope  to 
furnish  a  basis  and  principles  for  taxation,  as  it  includes  but 
a  small  part  of  even  the  relations  that  are  involved  in  the 
economic  life,  to  say  nothing  of  the  wide  field  of  "  services," 
other  than  in  the  strictly  economic  sphere,  for  which  com- 
pensation must  be  made,  or  rather  must  be  maintained. 

These  facts  go  to  show  that  while  the  productive  theory 
undoubtedly  represents  an  important  phase  of  the  economic 
relations  between  the  state  and  individuals,  it  is  not  a  phase 
that  can  furnish  a  basis  and  principles  of  taxation.  And  it 
is  to  the  credit  of  both  Wagner  and  Stein  that  they  made  no 
such  attempt,  and  that  least  of  all  did  they  conceive  this 
relation  to  be  the  only  relation  that  determines  principles  of 
taxation ;  that  is,  did  not  conceive  taxation  as  a  purely 
economic  problem. 

'  "Aber  schwierig  ist  sogar  die  technische  und  vollends  die  okonomische  Produc- 
tivitat  der  einzelnen  Staatsthatigkeiten  zu  beurtheilen."    Wagner,  op.  cit.,  i,  p.  13. 

'  Cf.  Sax,  op.  cit.,  p.  98. 


138  JUSTICE  IN  TAXATION  [474 

IV.    The  Utility  Theory  of  Sax. 

Although  the  theories  just  discussed  are  based  upon  the 
conception  of  an  economic  relation  between  the  individual 
and  the  state,  they  do  not  attempt  (with  partial  exceptions 
of   the  "exchange"  and  "single  tax"    theories)   to   place 
taxation  upon  a  purely  economic  basis,  or  to  determine  its 
principles  by  purely  economic  laws.     It  is,  on  the  contrary, 
the  boast  of  Sax  that  the  problems  of  taxation  are  to  be  solved 
simply  and  solely  by  the  application  of  economic  principles 
and  laws.     The  fundamental  thought,  as  we  have  seen,  is,  that 
the  collective  wants  of    a    people — wants   satisfied    by   the 
agency  of  government — resolve  themselves  into  individual 
wants  in  such   a  manner  that  they  constitute  a  part  in  the 
totality  of  indvidual  wants,  being  distributed  indiscriminately 
in  the  circle  (Reihe)  of  wants  according  to  their  intensity; 
and  that  all  wants,  collective  and  private  without  distinction, 
are   satisfied  in  the    order    of  their  intensity,  the  final  test 
always  being  the   marginal   utiUty  of  goods  relative  to  the 
wants  satisfied  by  them.'     Collective  and  private  wants  are 
upon  precisely  the  same   plane,  and  in  a  conflict  between 
them  it  is  the   relative  intensity  of  wants  that  decides  the 
competing  claims.     Precisely  in  one  case  as  in  the  other,  in 
taxation  as  in  economics,  it  is  a  question  of  the  intensity  of 
wants  on  the  one  side,  and  of  the  marginal  utility  of  goods 
on  the  other — the    utility    itself    being  determined  by  the 
psychological  law  of  "  greatest  satisfaction  with  the  least  pos- 
sible sacrifice,"  or  efTort.     In  brief,  laws  of  subjective  value, 
themselves  rooted  in  sensation,  are  the  alpha  and  omega  of 
problems  of  taxation,  as,  indeed,  of  all  financial  problems.' 

Not  only  have  we  here  an  economic  basis  and  an  eco- 
nomic principle,  but  we  have  in  them  the  fundamental  basis 
and  principle  of  taxation.     Economic  laws  become  the  in- 

»  See  Sax,  op.  cit.,  §  31.  *  Cf.  iHd.,  §  52. 


475]  ECONOMIC  BASIS  AND  PRINCIPLES  139 

terpreter  of  both  the  poHtical  and  ethical  side  of  taxation. 
Indeed,  according  to  Sax,  taxation  is  not  an  ethical  problem, 
the  principles  of  taxation  having  nothing  to  do  with  ethical 
considerations.  The  problem  is  one  of  economics,  and  only 
by  a  strict  adherence  to  economic  laws  is  justice  in  taxation 
possible.  The  ethics  of  taxation  is  simply  the  inevitable 
consequences  of  the  economics  of  taxation.' 

That  this  theory,  thus  briefly  and  inadequately  stated, 
contains  the  simplicity  that  is  claimed  for  it  cannot  be  denied. 
But  to  Sax  this  simplicity  is  a  guarantee  of  its  truth  (eine 
Burgschaft  ihrer  Richtigkeit).  Indeed,  the  simple  law  of 
value,  the  solvent  of  every  financial,  as  of  every  economic 
problem,  is  comparable  in  its  importance  to  the  law  of  grav- 
itation.^ This  simple  law,  so  it  is  exultingly  and  triumph- 
antly claimed,  is  the  "  light  which,  like  the  electric  flames  of 
the  sun,  clears  up,  all  at  once,  the  hitherto  dark,  confused 
province  (of  taxation)."  3  We  are  told,  too,  and  repeatedly 
with  much  apparent  self-satisfaction,  that  in  this  law  the  dif- 
ficult problems  of  taxation  for  the  first  time  find  a  solution ; 
and  for  the  first  time  a  definite  meaning  is  given  to  the  idea  of 
justice  in  taxation.  The  law,  in  short,  explains  everything 
— benefits,  exchange,  sacrifice,  ability,  justice,  etc.,  etc.* 

In  this  estimate  of  the  merits  of  the  theory,  and  in  the 
axiomatic  character  of  the  proof  of  its  validity.  Sax  has  sup- 
port in  the  able  Italian  economist  Ricca-Salerno.  With 
such  able  defenders  it  is  with  not  a  little  diffidence  that  we 
venture  to  question  some  of  the  pretensions  of  this  theory 
and  to  offer  some  criticisms  upon  it,  at  the  same  time 
acknowledging  its  many  merits.  Because  of  the  exalted 
claims  for  this  theory,  and  in  form,  at  least,  its  comparative 
newness,  we   may  be  justified  in  giving  to   it  a  somewhat 

1  Cf.  Sax,  op.  cit.,  p.  524,  and  Die  Prcgressivsteuer,  p.  89. 

»  Grundlegung,  p.  308.  '  ^Hd.,  p.  444- 

*  Cf.,  Die  Progressivsteutr,  p.  90. 


I40  JUSTICE  IN  TAXATION  [476 

more  extended  consideration  than  we  have  given  to  any  oi 
the  preceding  theories  discussed. 

I.  Its  Originality.  Reflection  must,  I  think,  convince  us 
that,  with  all  of  its  claims,  the  theory  of  Sax  does  not  differ 
in  essence  from  some  of  the  older  theories  that  it  so  vigor- 
ously combats.  It  differs  from  these  only  as  the  utilitarian 
theory  of  value  dififers  from  that  of  the  classical  economists 
— in  being  more  fundamental  in  its  analysis.  True,  this 
difiference  is  important,  and  to  Sax  all-important.  Like 
them  all,  the  theory  of  Sax,  from  one  point  of  view,  is  a 
theory  of  benefits,  of  exchange.  But  while  they  emphasize 
the  objective  side  of  the  exchange.  Sax  emphasizes  the  sub- 
jective character  of  the  exchange.  Or  if  Adam  Smith  em- 
phasizes the  "protective  service"  of  the  exchange,  Bastiat 
and  Perry  the  fact  of  the  exchange,  Thiers  the  element  of 
insurance,  George  the  service  of  the  government  in  creating 
"  land  values,"  Wagner  and  Stein  the  productive  service  of 
the  government,  Sax  emphasizes  the  subjective  motives  that 
determine  the  character  and  amount  of  the  exchange — the 
ultimate  fact  of  the  exchange. 

In  another  respect,  also,  there  is  an  important  difiference. 
For,  whereas,  in  the  other  theories  the  "  exchange  "  sug- 
gests the  idea  of  the  state  standing  over  against  the 
individual  as  a  separate  entity,  as  an  independent  party  to 
the  contract,  the  theory  of  Sax  more  correctly  regards  the 
whole  phenomenon  as  proceeding  from  the  individual,  and 
determined  by  the  individual;  collective  life  and  collective 
economy  being  but  a  separate  phase  of  individual  life  and 
individual  economy.' 

But  notwithstanding  these  and  other  dififerences,  the  basic 
idea  of  the  tax  and  of  tax  principles  is  essentially  the  same 
with  Sax  as  with  his  predecessors.  As  previously  pointed 
out,''  the  practical  rule  that  Sax  deduces  from  his  theory  is 

»  Cf.,  §  31.  *  Ante,  p.  92. 


477]  ECONOMIC  BASIS  AND  PRINCIPLES  141 

the  same  as  that  previously  expressed  by  Mill,  as  the  result 
of  his  theory  of  "equal  sacrifice,"  which  itself  may  be  con- 
sidered as  the  subjective  side  of  the  theory  of  benefits  and  of 
exchange.  At  best  the  "  equivalence''  theory  of  Sax  differs 
from  the  "  equal  sacrifice  "  theory  of  Mill  only  in  giving  an 
ultimate  and  more  definite  measure  of  the  sacrifice,  and  we 
may  add,  too,  of  "benefits"  and  "exchanges."  This  ulti- 
mate measure  he  finds  in  the  "  marginal  utility  "  of  goods, 
applying  to  finance  the  economic  "  utility  theory  "  of  value. 

But  Sax  is  not,  as  he  would  have  us  suppose,  the  first 
economist  to  make  this  application.  As  pointed  out  by 
Professor  Seligman,  "  the  formulation  of  the  whole  doctrine 
had  been  developed  by  Meyer  without  any  suspicion  on  his 
part  that  he  had  thereby  made  any  specially  new  dis- 
covery."' One  emphasizes  the  marginal  want  satisfied  be- 
cause of  the  tax,  and  the  other  the  marginal  want  unsatisfied  ; 
a  distinction  without  a  difference.  But  the  honor  of  first 
applying  the  utility  theory  of  value  to  finance  is  credited  by 
Mazzola  to  the  Italian  economist  Pantaleoni." 

2.  Simplicity  and  Truth.  There  is,  indeed,  a  fascination 
in  simplicity.  But  we  ask :  Is  simplicity  a  guarantee  of 
truth?     And  is  the  theory  of  Sax  as  simple  as  it  seems? 

It  is  no  doubt  true  that  only  as  we  discover  unity  in  social 
as  in  natural  phenomena,  do  we  get  an  interest  in  them  (as 
distinct  from  a  curiosity),  because  only  then  are  we  able  to 
comprehend  them  in  all  of  their  relations,  only  then  intelli- 
gently understand  them.  Such  a  unifying  principle  we  have 
in  the  idea  of  utility,  and  this  principle  bids  fair  to  become 
still  more  important  in  the  future  than  it  has  been  in  the 
past;  both  in  the  interpretation  of  the  philosophy  of  history, 
and  in  the  evolution  of  political,  social  and  economic  insti- 
tutions.3     But  in  the  application  of  this  principle  to  such  a 

'  Progressive  Taxation,  p.  148.  *  See  ante,  p.  53,  note, 

'  This  was  emphasized  by  Prof.  Giddings  in  his  lectures  on  Sociology  at  Colum- 
bia University,  in  1890-91. 


142  JUSTICE  IN  TAXATION  [478 

wide  range  of  phenomena  we  must  observe  caution  lest  we 
push  it  too  far,  and  neglect  counteracting  or  modifying 
forces.  We  must  beware  of  deceptive  analogies.  These  cau- 
tions are  particularly  pertinent  when  we  attempt  to  employ 
sensuous  phenomena  in  the  explanation  and  interpretation 
of  distinctively  spiritual  activities  and  relations — the  ac- 
tivities and  relations  of  spiritual  beings.  For  example,  in 
applying  the  principle  of  utility  to  moral  agents  it  is  indis- 
pensable to  truth  that  we  take  account  of  the  distinctive 
characteristics  and  attributes  of  mind,  over  and  above  the 
sensuous  pleasures  and  pains. 

No  better  example  can  be  given  of  the  attempt  to  use  one 
common,  all-embracing  principle  to  explain  and  to  interpret 
all  phenomena,  to  give  unity  to  all  knowledge,  of  the  animal 
and  human  worlds,  of  the  physical  and  the  mental,  of  the 
individual  and  the  social — than  is  to  be  found  in  Herbert 
Spencer's  system  of  philosophy ;  but  the  simplicity  of  his 
principle  does  not  prove  the  truth  of  his  philosophy,  and 
still  less  the  truth  of  his  special  applications  of  his  principle. 
There  is,  indeed,  a  unity  in  truth,  but  it  is  a  unity  in  com- 
plexity ;  there  is  not  always  a  truth  in  unity.  In  our  search 
for  knowledge  we  are  too  apt  to  be  led  astray  by  those  Idols 
of  the  Tribe  against  which  Bacon  warned  us,  and  our  search 
for  truth  descends  into  a  search  for  simplicity. 

Now  it  is  my  contention,  further,  that  the  principle  by 
which  Sax  seeks  to  interpret  the  phenomena  of  taxation  is 
more  complex  than  he  imagines,  at  least  more  complex  in 
its  application.  True,  there  is,  and  must  be,  an  underlying 
unity  in  individual  and  social  phenomena,  since  social  life  is, 
in  a  sense,  but  the  larger  self  of  the  individual.  But  just 
because  society  is  the  "  larger  self,"  the  common  principle, 
when  applied  to  it,  takes  on  a  complexity  that  does  not  exist 
when  confined  to  the  individual  as  such.  It  is  operating 
under   different   circumstances    and    conditions  in  the  two 


479]  ECONOMIC  BASIS  AND  PRINCIPLES  143 

cases,  and,  therefore,  in  its  application  these  circumstances 
and  conditions  must  be  duly  considered.  Hence  it  is  quite 
possible  for  the  conclusions  in  one  case  to  be  quite  different 
from  those  in  the  other.  Only  by  neglecting  important 
factors,  and  by  the  use  of  the  specious  argument  of  analogy 
can  we  conclude  from  the  one  to  the  other. 

The  fact  is,  that  Sax  is  able  to  conceive  of  the  simplicity 
of  his  principle  only  by  abstracting  from  it  some  of  its  most 
important  elements,  only  by  considering  it  from  the  view- 
point of  "pure  economics,"  abstracted  from  all  ethical  con- 
siderations. But  no  such  abstraction  can  be  allowed ;  for 
wherever  human  relations  are  involved  there  are  also  in- 
volved ethical  considerations.  Human  connotes  ethical,  and 
so  likewise  the  problem  of  equality  of  taxation,  as  Professor 
Seligman  observes,  "connotes  an  ethical  problem."'  The 
problem  of  taxation  can  not,  therefore,  be  reduced  to  a  sim- 
ple problem  of  pure,  that  is,  of  abstract,  economics.  But  the 
*'  simplicity  "  of  the  theory  of  Sax  is  only  the  simpHcity  of 
abstract  economics,  therefore  a  seeming  simplicity  only. 
These  criticisms  will  become  more  apparent  as  we  proceed. 

3,  Individual  and  Collective  Psychology. — The  theory  of 
Sax,  like  the  utility  theory  of  value  upon  which  it  rests,  has 
its  foundation  in  what  we  may  call  a  psychology  of  motived 
action.  It  is,  moreover,  one  of  the  fundamental  assump- 
tions of  Sax  that  collective  psychology  is  the  same  as  indi- 
vidual psychology  ;  that,  in  other  words,  "  collective  "  activity 
for  the  satisfaction  of  common  wants  is  directed  in  precisely 
the  same  way  as  individual  activity  in  the  satisfaction  of 
private  wants ;  that  is,  by  the  intensity  of  the  want  to  be 
satisfied,  or  by  the  egoistic  impulse  to  get  the  greatest  pos- 
sible enjoyment  in  the  satisfaction  of  wants  with  the  least 
possible  sacrifice  to  the  self.  But  here,  again — in  concluding 
irom  individual  to  collective   psychology — there  is  need  of 

'  Progressive  Taxation,  p,  149. 


144  JUSTICE  IN  TAXATION  [480 

the  greatest  caution.  Similarities  and  analogies  will  not 
suffice. 

It  is  true,  as  Sax  very  correctly  shows,  that  "  collec- 
tive needs  "  do  not  pertain  to  the  Collectivity — the  state — 
as  an  independent  entity,  but  are  ultimately  resolvable  into 
the  needs  of  the  individuals  that  constitute  that  Collectivity, 
and  true,  therefore,  that  in  the  satisfaction  of  these  needs 
individual  psychical  relations  and  activities  are  involved. 
But  more  than  this  fact  is  necessary  to  prove  a  psychical 
identity  in  the  two  cases.  The  psychical  activity  of  the  indi- 
vidual may  be  the  same  when  he  is  acting  for  himself  or  the 
collective  whole,  but  the  condition,  motives  or  impulses  that 
determine  the  activity  may  not  be,  and  we  contend  are  not, 
necessarily  the  same.  The  highest  good  for  the  Collectivity 
may  not  be  the  highest  good  for  the  individual.  It  is  in  the 
neglect  of  these  dissimilarities  that  Sax,  to  my  mind,  makes 
his  greatest  mistake.  The  Idols  of  the  Tribe  prove  false 
guides. 

What  the  psychological  differences  are  will  appear  pres- 
ently, but  that  they  are  important  to  the  question  at  issue 
cannot  be  doubted.  For  the  point  at  issue  is  whether  the 
principles  underlying  utilitarian  economics  are  so  far  appli- 
cable to  public  economy  as  to  be  able  to  furnish  an  all-suffi- 
cient basis,  as  also  principles  of  taxation,  solving  the  prob- 
lems of  equality,  exemptions,  proportions,  etc.,  apart  from 
any  ethical  considerations.  Hence,  it  is  important  to  ascer- 
tain how  far  the  primary  assumption,  that  individual  and  col- 
lective satisfaction  of  needs  obey  the  same  law,  is  true.  The 
question  may  be  considered  subjectively,  or  psychologically, 
and  objectively,  or  empirically.  At  present  we  are  con- 
cerned with  the  psychological  question :  Whether  the  psy- 
chology of  the  individual,  qtia  individual,  is  the  same  as  that 
of  the  individual  as  participating  in  the  Collectivity — is  the 
same,  that  is,  as  collective  psychology.     We  may  note  the 


48 1  ]  ECONOMIC  BASIS  AND  PRINCIPLES  145 

difference  by  first  calling  attention  to  certain  facts  of  indi- 
vidual, then  of  collective  psychology. 

( I )  Individual  Psychology;  or  the  Psychology  of  Individual 
Satisfaction  of  Needs. — In  the  first  place,  individual  psychol- 
ogy has  to  do  with  sentient,  self-conscious,  self-determined 
organisms;  that  is,  with  persons  whose  peculiar  nature  it  is 
to  have  "  ideals,  feelings  and  sensations "  '  that  pertain  to 
them  as  individuals,  and  others  that  pertain  to  them  as  social 
beings,  that  is,  spring  from  their  membership  in  political 
society.  The  former  (we  confine  ourselves  to  the  economic) 
are  induced  by  a  conception  of  certain  psychical  states,  cer- 
tain conceptions  of  the  self,  that  the  individual  desires  to 
attain  for  himself,  while  they  involve  the  relation  of  external 
objects  to  the  sentient  self.  By  changing  the  objective  rela- 
tions he  changes  the  subjective  state  of  feelings  and  sensa- 
tions— satisfies  his  needs,  his  ideals.  By  controlling  the 
former,  therefore,  he  controls  his  own  psychical  states,  his 
own  satisfactions.  Ideas,  feelings  and  sensations  that  a  given 
order  of  things  may  induce  are  compared  with  the  ideals, 
feelings  and  sensations  that  another  possible  order  may 
induce,  and  the  individual  decides  for  himself  (conditioned 
by  external  limitations)  which  order  of  things  shall  prevail 
by  deciding  which  order  will  give  him  the  greatest  satisfac- 
tion on  the  whole,  thereby  satisfying  his  highest  need  as  he 
sees  it  for  the  time  being.  For  example,  he  may  decide  to 
exchange  a  given  sum  of  money  for  the  necessities  of  life,  or 
for  a  work  of  art,  thus  effecting  a  subjective  satisfaction  in 
accordance  with  an  ideal  that  he  has  formed  of  himself,  an 
ideal  that  is  peculiar  to  his  own  psychical  nature. 

Again,  it  may  be  noted  that  private  economic  needs  are 
subjectively  ideas,  feelings  and  sensations  that  pertain  to  and 
are  felt  directly  by  the  individual,  but  objectively  they  per- 
tain to  "  goods  "  by  which  the  needs  are  satisfied,  the  goods 

*  Cf.  Sax,  Grundlejptng,  p.  5  74. 


146  JUSTICE  IN  TAXATION  [482 

themselves  belonging  to  and  being  under  the  control  of  the 
same  individual.  By  a  subjective  comparison  of  needs,  as 
actually  and  as  ideally  satisfied  by  the  goods  in  question,  the 
subjective  value,  or  marginal  utility,  of  the  goods  is  ascer- 
tained, relative  to  the  intensity  of  feeling  of  the  needs  com- 
pared ;  and  hence,  again,  since  the  goods  are  under  the  con- 
trol of  the  individual,  he  may  satisfy  his  needs  in  the  order 
of  their  intensity  so  far  as  he  is  in  possession  of  the  neces- 
sary economic  goods. 

Expenditure  of  goods — satisfaction  of  needs — will,  of 
course,  be  influenced  by  habits,  by  the  circumstances  of 
social  and  industrial  conditions;  but  intensity  of  individual 
feehng,  relative  to  the  ideal  the  individual  has  of  himself, 
will  determine  the  order  of  the  satisfaction  of  needs  whatever 
the  conditions;  but  because  of  the  consumer's  rent,'  or  sur- 
plus, there  is  not  necessarily  an  equality  between  the  objec- 
tive value  of  the  goods,  the  price  the  consumer  must  pay, 
and  their  subjective  utility  for  the  satisfaction  of  needs,  or 
the  price  which  he  would  be  willing  to  pay.  Or,  rather,  be- 
cause there  is  not  an  equality  between  the  objective  value 
and  the  subjective  utility  of  goods,  there  arises  a  consumer's 
surplus.  Or,  more  correct  still,  a  consumer's  surplus  arises 
because  the  marginal  utility  of  goods  to  the  consumer, 
measured  by  the  sacrifice  which  he  is  willing  to  undergo  in 
order  to  obtain  them,  is  greater  than  their  "  social  marginal 
utility,"  as  Professor  Seligman  very  aptly  puts  it,  or  "  the 
sacrifice  which  the  members  of  society  as  a  whole  are  willing 
to  make."  ^ 

(2)  Collective  Psychology;  or  the  Psychology  of  the  In- 
dividual in  Collective  Life.  Thus  far  students  of  psychol- 
ogy have  given  but  slight  attention   to   the   psychology  of 

^See  Marshall, /^rf«ir///?j,  p.  181. 

•Seligman,  "Social  Elements  in  the  Theory  of  Value,"  in  Quart,  Journ.  of 
Econ.,  vol.  XV,  p.  332. 


483]  ECONOMIC  BASIS  AND  PRINCIPLES  147 

collective  life,  and  we  have  not,  therefore,  a  systematized 
knowledge  concerning  it.  As  I  do  not  pretend  to  be  a 
psychologist  I  shall  not  presume  to  elaborate  such  a  the- 
ory. Nevertheless,  I  believe  that  a  little  reflection  must 
convince  us  that  "ideals,  feelings  and  sensations"  have 
quite  a  different  significance  according  as  they  have  refer- 
ence to  the  individual,  qua  individual,  or  to  the  individual  in 
his  social  activities — to  the  satisfaction  of  private,  or  to  the 
satisfaction  of  collective  wants. 

That  the  psychical  phenomena  in  both  cases  centre  in  the 
individual  there  can  be  no  doubt,  for  there  is  no  psychical 
"collective  entity"  in  which  psychical  phenomena  may 
centre.  Nevertheless,  the  two  classes  of  phenomena  have 
distinctive  characters.  The  "  ideals,  feelings  and  sensa- 
tions "  that  actuate  the  individual,  qiia  individual,  may  lead 
to  a  quite  different  course  of  conduct  from  that  to  which 
they  would  direct  if  they  actuated  the  individual  as  repre- 
sentative of  the  "  collective  whole."  It  is  nothing  to  our 
purpose  that  there  is  no  psychology  of  the  individual  worth 
speaking  of,  except  of  the  individual  participating  in  social 
life.  The  point  is  that  he  is  actuated  differently  when  act- 
ing for  himself  and  when  acting  for  the  "  whole,"  because 
actuated  by  a  dififerent  conception  of  the  "  good,"  in  the  one 
case  a  good  for  the  self,  in  the  other  a  good  for  the  whole— 
a  "personal"  good  and  a  "common"  good.  And  it  is  the 
conception  of  the  "  good  "  that  is  the  fact  of  importance. 
Intensity  of  feeling  may  be  the  immediately  controlling 
force  in  both  cases,  but  it  is  the  conception  of  the  "  good" 
that  one  forms  for  himself  that  determines  the  direction  of  that 
intensity.  Sax  may  find  in  intensity  of  feeling — in  sensation — 
a  tertium  coniparatio7iis  to  explain  demand  and  supply, 
sacrifice,  difTerences  in  needs,  etc.,'  but  he  fails  to  see  that 
there  is  a  still  more  fundamental  tertimn  comparationis  that 

'  Cf.  Sax,  Grundle^ung,  p.  176. 


148  JUSTICE  IN  TAXATION  [484 

explains  and  interprets  the  intensity  of  the  sensation,  to 
wit. :  the  conception  of  the  ideal  that  one  sets  for  himself  to 
attain. 

From  these  facts  it  would  seem  clear  that  "  ideals,  feelings 
and  sensations  "  partake  of  a  dififerent  character  according 
as  they  are  concerned  with  the  satisfaction  of  private,  or  of 
collective,  wants ;  that,  therefore,  we  cannot  safely  conclude 
from  rules  of  private  satisfaction  to  rules  of  collective  satis- 
faction ;  that  the  fact  that  intensity  of  desire  is  an  imme- 
diately controlling  force  in  both  cases  is  not,  as  previously 
pointed  out,  a  sufficient  fact  for  comparison.  In  fact,  it  is 
only  as  the  individual  in  acting  for  the  whole  differentiates 
his  motives  and  actions  from  what  they  would  be  if  he  were 
acting  for  himself  alone ;  only,  that  is,  as  he  dififerentiates 
his  conception  of  the  good  of  the  whole  from  his  conception 
of  the  good  for  self,  is  his  action  likely  to  be  directed  to  the 
attainment  of  the  "  common  good."  On  the  other  hand,  so 
far  as  the  individual  in  his  capacity  of  acting  for  the  whole 
is  dominated  by  the  impulse  that  would  guide  him  if  acting 
for  himself,  irrespective  of  others ;  so  far,  that  is,  as  he  is 
guided  by  a  conception  of  his  own  *'  personal  good,"  and 
not  by  a  conception  of  the  "  common  good,"  the  tendency 
of  his  action  will  be  to  thwart  the  attainment  of  the  "  com- 
mon good."  This  latter  case  is  well  illustrated  by  the 
"  professional "  ofhce  seeker,  with  whom  the  interest  of  self 
dominates  his  every  action,  and  who  thereby,  paradoxical  as 
it  may  seem,  assumes  a  dififerent  character,  a  different  per- 
sonality, when  acting  in  the  two  capacities ' — for  the  self  and 
for  the  whole ;  for  when  acting  for  the  whole  he  does  not 
make  its  good  his  good  as  he  would  if  the  whole  were  him- 
self.    He  rather  assumes  that  he  is  the  whole. 

•  There  is,  indeed,  much  apparent  truth  in  the  semi-serious  suggestion  of  Prof. 
Giddings,  that  the  "  politician"  at  least,  has  a  double  consciousness,  a  dual  per- 
sonality, assuming  one  in  his  private  capacity  and  another  in  his  public  capacity. 
Notes  from  lectures  on  Sociology,  Columbia,  1890. 


485]  ECONOMIC  BASIS  AND  PRINCIPLES  149 

From  the  above  considerations,  inadequate  as  they  are,  it 
is  apparent  that  private  and  collective  needs  are  distinct  in 
their  character,  their  point  of  view,  their  aims,  and  may  be 
in  their  subjective  results.  Private  needs  are  felt  by  the 
sentient  self  to  whom  they  belong,  their  interest  is  solely  for 
the  self,  they  are  directed  by  the  self  for  its  own  "  good," 
and  are  measurable  by  the  self  by  comparison  with  felt 
needs.  Collective  needs,  on  the  contrary,  are  conceived  by 
individuals,  but  as  belonging  to  the  whole;  are  indirectly 
controlled  and  satisfied  by  representative  agents,  pertain  not 
to  the  individual,  but  to  the  common  good,  and  are  only  re- 
motely capable  of  measurement  by  comparison,  if,  indeed, 
they  are  not  immeasurable.  The  former  are  felt ;  the 
latter,  as  Mazzola  '  points  out,  are  distinctively  "  reflexive 
needs,"  needs  related  to  thought  rather  than  to  feeling. 

4.  Collective  Needs  Empirically  Considered. — That  the 
satisfaction  of  collective  needs  is  not  wholly  determined  by 
the  same  rule,  or  law,  that  determines  the  satisfaction  of 
private  needs  will  appear  still  more  evident  by  a  few  practi- 
cal observations  of  objective  facts ;  facts,  however,  that  are 
determined  by  and  are  illustrative  of  the  psychological  differ- 
ences already  mentioned.  We  need  to  note  only  differences 
in  the  character  of  the  problems  of  satisfactions,  and  the 
political  facts  relative  to  collective  satisfactions. 

(i)  Differences  in  Character. — It  is,  as  we  have  seen,  one 
of  the  errors  of  Sax  that  his  economic  theory  is  too  abstract; 
that  he  assumes  economic  action  to  be  determined  solely  by 
the  intensity  of  economic  want,  whereas  there  are  many  in- 
fluences that  go  to  shape  economic  action,  as  ethical,  social, 

'  Mazzola,  op.  cit.,  p.  73.  While  Mazzola  makes  some  good  criticisms  of  the 
theory  of  Sax,  he  seems,  on  the  whole,  to  accept  the  theory;  but  thinks  that  the 
highest  utility  of  the  tax  can  be  determined  only  by  differential  calculus,  since 
there  are  various  factors  involved  in  the  problem,  and  not  one  factor,  as  Sax 
assumes.     This,  he  says,  "  is  the  limit  to  which  financial  economy  can  go,"  p.  149. 


I50  JUSTICE  IN  TAXATION  [486 

etc'  The  error  is  aggravated  when  economic  law  is  applied 
to  financial  problems,  such  as  taxation,  since  here  these 
modifying  influences  become  of  even  greater  importance. 
With  this  correction  there  is,  under  ideal  conditions,  a  degree 
of  similarity  between  the  satisfaction  of  private  and  public 
needs,  between  private  and  public  economy.  Still,  even 
then,  we  are  compelled  to  assume  that  the  individual  in  his 
public  capacity  seeks  to  change  the  objective  relations  of 
things  with  respect  to  an  ideal  standard  for  the  whole  body 
politic;  just  as  the  individual  seeks  to  change  the  relations 
of  things  with  respect  to  an  ideal  standard  of  objective  rela- 
tions that  he  forms  for  himself.  But  these  conditions  are 
ideal  and  imply  ideal  conditions  of  human  nature.  They  are 
yet  far  from  attainment. 

But  even  if  the  ideal  conditions  prevailed  there  would  yet 
be  an  important  difference ;  for  although  ethical  relations 
are  involved  in  both  cases,  they  are  or  should  be  the  deter- 
mining force  in  all  action  directed  towards  public  ends,  since 
every  public  act,  particularly  in  matters  of  taxation,  involves 
the  rights  and  duties  of  every  member  of  the  state  in  a 
manner  that  is  out  of  all  proportion  to  that  of  private 
economic  action.  If  this  were  not  so  a  government  might 
well  adopt  the  advice  of  McCulloch  and  let  expediency 
determine  its  tax  system.*  Then,  too,  the  fact  that  action  in 
the  one  case  is  directed  with  reference  to  self,  and  in  the 
other  case  with  reference  to  others,  puts  a  wide  chasm  be- 
tween them.  Intensity  of  feeling  may  control  both  sets  of 
actions,  but  not  all  public  action  is  controlled  by  the  need 
most  felt  by  the  public,  because  the  individual  in  his  capacity 

'See  last  note,  and  Zorli,  Za  Scienza  dei  Tributi,^,  17,  where  he  mentions 
cosmological,  anthropological  and  sociological  elements.  Cf,,  also,  Cohn,  Science 
of  Finance,  sec.  195. 

'  See  Taxation  and  Funding,  p.  161.  Cf.,  also,  Held,  Einkommensteuer,  p. 
115,  and  Newcomb,  Political  Economy,  p.  493.  Newcomb  relies  upon  shifting  of 
of  taxes  to  effect  justice  in  the  long  run. 


487]  ECONOMIC  BASIS  AND  PRINCIPLES  151 

as  a  public  agent  is  too  often  actuated  by  motives  that  are 
relative  to  purely  private  ends.  These  facts  may  be  illus- 
trated by  the  political  factors  in  the  problem. 

(2)  Political  Factors.  According  to  Sax  the  method  by 
which  we  satisfy  our  collective  wants,  by  the  same  rule  that 
we  satisfy  our  private  wants,  is  through  the  agency  of  repre- 
sentative government  by  means  of  our  vote.  (He  does  not 
pretend  that  his  theory  applies  to  any  other  form  of  govern- 
ment.) But  is  this  anything  more  than  a  pleasing  fancy? 
True,  we  voluntarily  consent  to  be  taxed — to  make  expendi- 
tures for  our  "  collective "  needs ;  but  the  tax  is  pre- 
eminently compulsory  and  must  be  paid  whether  we,  as 
individuals,  will  or  no.  Nor  does  our  consent  carry  with  it 
the  amount  of  the  tax  nor  the  purposes  for  which  it  will  be 
used.  It  is  true  that  we  consent  to  leave  this  to  the  dis- 
cretion of  our  representatives,  but  their  judgment  is  not 
necessarily  our  judgment,  for  they  are  more  inclined  to  be 
dominated  by  their  needs  than  by  our  needs,'  and  their 
needs  take  on  a  new  form  and  variety  as  they  become  public 
agents. 

Without  doubt,  much  of  the  public  expenditure  is  in  the 
interest  of  the  common  good,  but  there  is  no  less  doubt  that 
no  inconsiderable  part  of  it  is  spent  to  satisfy  the  private 
needs  of  our  "  representatives,"  rather  than  the  common 
needs.  Legislators  will  vote  for  expenditures  that  they 
know  will  enrich  themselves,  their  friends,  or  their  con- 
stituents, well  aware  that  its  ultimate  utility  to  them  will  far 
exceed  their  share  in  the  burden  of  the  tax,  while  for  the 

' "  Sax's  error,  when  considering  the  cause  that  determines  taxes,  is  in  giving 
excessive  importance  to  the  needs  of  those  who  pay  them  and  too  little  to  the 
needs  of  those  who  make  them  pay."  Zorli,  op.  cit.,  p.  55.  This  little  book  con- 
tains a  very  good  criticism  of  the  theory  of  Sax.  The  spirit  of  the  criticism  is  verf 
similar  to  that  which  will  be  found  in  the  text.  As  our  own  criticisms  were  made 
before  we  knew  of  the  work  of  Zorli,  we  have  not  made  as  many  references  to  it 
as  we  should  otherwise  have  done. 


152  JUSTICE  IN  TAXATION  [488 

great  mass  of  the  taxpayers  there  would  be  far  greater 
utility  in  private  expenditure.  The  public  good  is  made  to 
give  way  to  the  selfish  interest  of  the  individual  or  a  class.* 
Surely  there  is  little  here  that  is  common  between  private 
and  public  economy ! 

But  says  Sax,''  this  state  of  things  cannot  always  endure, 
for  in  the  course  of  time — it  may,  indeed,  be  a  generation 
or  more — the  wrongs  will  be  righted,  if  needs  be  by  revolu- 
tion. Indeed,  a  whole  generation  or  more  pilfered,  deprived 
of  the  fullest  satfsfaction  of  both  their  collective  and  their 
private  needs,  and  the  wrong  to  be  righted,  adjustment  of 
expenditures  in  accordance  with  needs  to  be  re-established 
only  by  some  future  generation,  perchance  at  the  expense 
of  a  costly  and  bloody  war,  perchance,  too,  with  a  repetition 
of  the  same  order  of  events  !  And  this  is  satisfying  our 
collective  needs  on  the  same  principle  that  we  satisfy  our 
private  needs !  Could  the  infatuation  for  a  theory  go 
further? 

But  apart  from  all  corruption,  the  individual  has  a  very  in- 
direct and  very  inadequate  control  over  the  public  expendi- 
tures for  collective  needs.  In  the  first  place  a  majority  vote 
in  the  legislature  may  represent  a  minority  of  the  voters.3 
Then,  again,  it  is  seldom  that  the  policy  of  expenditures  or 
taxes  is  submitted  to  the  voters  before  the  majority  in  the 
government  have  entered  upon  it,  and  which,  perhaps,  as  in 

^  Note,  for  example,  our  corrupt  city  governments.  It  is,  however,  not  con- 
fined to  them.  Speaking  of  Italy,  Pareto  writes :  "  Up  to  the  present  time  the 
governing  class  has  not  opposed  the  increase  of  expenditures,  because  they  have 
the  means  of  enriching  themselves,  and  at  the  same  time  satisfying  their  vanity. 
If  they  had  to  pay  for  this  indulgence  they  would  be  inclined  to  renounce  it.  This, 
contingency,  however,  seems  far  off.  The  example  of  Spain  and  Portugal  shows 
that  a  Latin  country  may  approach  the  verge  of  ruin  before  the  governing  class 
renounces  the  policy  which  has  brought  it  there." ^  "Parliamentary  Government 
in  Italy."     Folit.  Sci.  Quart.,  vol.  viii,  p.  717. 

'  Grundlegung,  pp.  517  and  522. 

'  Note  also  approvals  and  vetoes  by  presidents  elected  by  a  minority  vote. 


489]  ECONOMIC  BASIS  AND  PRINCIPLES  153 

the  case  of  war,  is  practically  irrevocable.  The  subsequent 
"  approval  "  at  the  polls  may  mean  but  little,  since  the  appeal 
"  to  support  the  party  "  has  a  stronger  influence  upon  the 
voters  than  the  real  merits  of  the  tax  or  the  expenditure. 

Nor  do  we  find  it  at  all  more  satisfactory  if  we  turn  from 
the  "  representatives  "  to  the  voters,  as  is  illustrated  by  the 
almost  universal  tendency,  if  not  to  evade  taxation,  to  escape 
a  just  proportion  of  its  burden.  Says  Pareto,  in  the  article 
referred  to  above :  "  The  landed  proprietors  are  powerful 
to  resist  any  increase  of  taxation  upon  their  property ;  they 
have  even  been  able  to  get  the  land  tax  reduced  two-tenths, 
and  this  at  the  very  time  when  the  expenses  of  the  state 
were  increasing  in  an  extraordinary  degree  and  taxes  on 
consumption  were  being  increased  in  consequence."  '  Nor  is 
this  condition  exceptional  with  Italy.  Satisfying  our  col- 
lective needs  at  the  expense  of  others  by  evasion  of  taxes 
is  by  no  means  uncommon. 

Thus,  from  whatever  point  of  view  we  consider  the  ques- 
tion, we  cannot  find  that  Sax  and  his  disciple,  Ricca-Salerno, 
find  much  proof  for  their  theory  in  representative  govern- 
ment.' The  prevalence  and  power  of  an  egoism  of  the  indi- 
vidual, or  of  a  class,  in  a  representative  government  prevails 
against  the  practical  application  of  the  theory  only  in  less 
degree  than  it  does  in  a  despotism,  where  the  theory  is  not 
assumed  to  apply.  But  Sax  evidently  shares  in  the  sanguine 
expectations  of  Pantaleoni — that  eventually  all  lower  forms  of 
egoism  will  give  way  to  the  "  egoism  of  the  species  "  ^  to  an 
altruism  that  for  rulers  as  well  as  for  the  ruled  enforces  the 
sacrifice  of  self  to  promote  the  general  happiness. 

That  such  a  condition  does  not  yet  prevail ;  that  public 
assessments  and  disbursements  are  not  yet  wholly  determined 
on  the  same  principles  as  private  economy ;   that  there  is  a 

1  Op.  cit.  717.  *  Cy:Zorli;   op.  cii.,  p.  62. 

»  Quoted  by  Nitti  in  La  Scuola  Positiva,  Sept,  189 1,  p.  491. 


154  JUSTICE  IN  TAXATION  [490 

discrepancy  between  the  theory  and  practice,  Sax  virtually 
admits.  But,  so  it  is  argued,  any  unjust  distribution  of  the 
tax  is  not  the  fault  of  the  theory.  It  is  due  rather  "  to 
error  or  to  ignorance  of  actual  circumstances ;  but  more 
still  to  the  class  egoism  of  the  ruling  element  of  the  people 
which  seeks  to  throw  the  tax  burden  as  much  as  possible 
(uberwiegend)  upon  the  governed." '  Yet  this  condition  can 
not  long  endure,  since  such  a  government  would  be  event- 
ually overthrown  by  the  votes  or  by  the  guns  of  the  people. 

But  this  admission,  I  maintain,  is  not  to  be  so  easily 
reconciled  with  the  contention  that  in  the  economic  actions 
pertaining  to  the  fulfilment  of  the  ends  of  collective  life, 
"  men  are  guided  by  the  same  psychical  acts,  ideas  and 
sensations  which  a  comprehensive  analysis  shows  to  be  the 
guiding  elements  of  all  economic  action,  but  which  until 
now  [z.  (?.,  until  this  great  discovery  brought  truth  to  light] 
was  able  to  explain  only  individual  economy."  ^  The  fact 
is,  that  there  has  not  been  sufficient  discrimination  between 
"  the  psychical  acts,  ideas  and  sensations  "  as  such,  and  the 
difference  of  circumstances  and  conditions  under  which  they 
are  produced ;  or  between  them  and  the  standard,  or  ideal, 
in  accordance  with  which  they  are  interpreted — between 
the  conception  for  self,  and  the  conception  for  others. 
Hence  the  error  in  the  analogy  that  forms  the  basis  of  the 
theory. 

Upon  the  whole,  then,  we  cannot  think  that  Sax  has 
added  anything  of  great  importance  to  an  economic  basis 
and  economic  principles  of  taxation.  We  would  summarize 
as  its  more  important  defects :  that  it  is  a  pure  abstraction ; 
that  it  errs  in  its  analogies  and  in  its  theory  of  their  realiza- 
tion ;  that  its  validity,  at  best,  rests  upon  ideal  conditions 
that  nowhere  exist,  and  that,  therefore,  it  is  wrongly  assumed 
that  ethical  principles  will  be   realized  through  the  working 

^  GrundUgung,  p.  521.  •  Ibid.,  p.  574. 


49 1 ]  ECONOMIC  BASIS  AND  PRINCIPLES  155 

of  economic  law — the  law  of  "  greatest  intensity,"  or  mar- 
ginal utility.  But  after  all,  the  "  equivalence  "  of  intensities 
of  needs  sacrificed  because  of  the  tax,  which  to  Sax  is  "  the 
whole  problem  of  tax  distribution  in  a  nutshell,"  '  is,  as  we 
have  seen,  only  a  special  phase  of  the  sacrifice  theory. 
But  "  equality  of  sacrifice  "  is  fundamentally  an  ethical 
principle. 

IV.  Conclusion  as  to  True  Economic  Basis  and 

Principles 

From  the  preceding  review  of  economic  bases  and  princi- 
ples of  taxation  we  are  forced  to  conclude,  for  reasons 
given :  that  an  economic  basis  and  principles  do  not  stand 
apart,  but  are  closely  correlated  with  a  political  and  an 
ethical  basis  and  principles ;  that  neither  the  idea  of  "  pro- 
tection," of  "  service,"  nor  of  "  exchange"  forms  a  competent 
basis  for  economic  principles  of  taxation,  because,  among 
other  reasons,  the  econgmic  basis  must  be  in  perfect  har- 
mony with  the  political  basis — with  the  relations  between 
the  individuals  and  the  state — and  this  basis  is  not  properly 
expressed  by  these  conceptions,  because  they  do  not  prop- 
erly express  the  true  nature  of  the  state.  Moreover,  we 
have  seen  that  these  ideas  have  no  practical  significance, 
since  neither  the  "protection"  nor  the  "service"  exchanged, 
has  any  assignable  economic  value  such  as  the  theory 
implies. 

And  yet  there  must  be  an  economic  basis  from  which 
economic  principles  may  be  drawn,  and  this  basis  must  have 
definite  reference  to  the  relation  between  the  individual  and 
the  state ;  more  specially  to  the  economic  relation.  Ac- 
cording, then,  to  our  conception  of  this  relation — of  the 
nature  of  the  state — the  real  economic  basis  of  the  tax  is  the 
collective  needs  that  result  from  the  political  organization  of 

*  Die  Progressivsteuer,  p.  90. 


156  JUSTICE  IN  TAXATION  [492 

society — the  state ;  the  necessity  for  the  tax  being  due  to 
the  regime  of  private  property.  But  private  property  must 
also  provide  for  the  satisfaction  of  private  economic  needs, 
and,  therefore,  the  real  economic  problem  of  taxation  is  to 
satisfy  the  collective  needs  in  a  manner  proportionate  to  the 
satisfaction  of  private  needs ;  or  so  to  distribute  private 
property — really  the  income  from  it — between  the  satisfac- 
tion of  private  and  collective  needs  as  to  produce  the  high- 
est economic  efficiency,  the  highest  economic  development, 
and  the  most  complete  satisfaction  of  needs.  The  point  of 
view  is  that  of  the  individual,  and  the  real  question  is  one  of 
the  distribution  of  his  income  between  the  satisfaction  of  his 
private  and  his  collective  needs.  But  since  the  collective 
needs  must  be  satisfied  through  agents,  there  is  a  seeming 
opposition  of  interests,  which,  as  Schafitle  says,  occasions  a 
perpetual  strife.'  This  conflict  will  never  wholly  cease,  but 
with  a  due  regard  of  economic  principles  by  the  agents  of 
the  state  it  may  be  greatly  alleviated. 

What,  then,  are  the  economic  principles  that  should  guide 
the  agents  of  the  state  in  matters  of  taxation?  Briefly,  the 
primary  principle  is  precisely  that  of  the  problem  just 
stated :  That  individual  income  should  be  so  distributed  be- 
tween private  expenses  and  taxes — between  the  satisfaction 
of  private  and  collective  needs — that  both  the  highest  effi- 
ciency of  the  state  and  the  highest  efficiency  and  develop- 
ment of  the  individual  will  be  thereby  attained.  In  the 
words  of  Stein : 

"The  ruling  principle  of  Finance  is  that,  in  covering  the  needs  of 

the  State,  a  due  proportion  be  maintained  as  compared  with  the 

proportionate  covering  of  those  needs  not  represented  by  the  State. 

.    .    .  Neither  pubHc  nor  private  economy  presents,  of  itself,  a  final 

^  "Er  ist  Befreiungs-und  Freihaltungskampf  auf  Seite  der  Steuertrager  dem  Staate 
gegenliber."  Grundsdize  der  Steuerpolitik,  p.  164.  Cf.  also,  Cohn,  Science  of  Fi- 
nance, sec.  208. 


493]  ECONOMIC  BASIS  AND  PRINCIPLES  157 

end.  To  pamper  the  one  and  starve  the  other,  to  over-nourish  the 
one  and  stunt  the  other,  appears,  upon  its  face,  without  warrant, 
since  an  effective  State  and  a  strong  people  are  ahke  essential  ele- 
ments in  national  life.  Both  public  and  private  needs  are  integral 
parts  of  a  common  necessity,  and  the  one  as  well  as  the  other  must 
finally  be  determined  according  to  their  relative  importance  for  the 
maintenance  and  development  of  society  as  a  whole.  ...  To  pro- 
vide for  the  public  necessities  as  well  as  for  private  wants,  in  the 
ratio  of  their  importance,  is  the  manifest,  self-apparent  demand 
which  the  theory  of  finance  that  holds  itself  within  the  circle  of 
economic  vision  asserts  as  its  own,  and  which  may  be  successfully 
opposed  to  the  parsimonious  citizens  as  well  as  to  the  spendthrift 
State." ^ 

It  is  admitted  that  this  economic  principle  is  very  general 
in  character,  but  it  is  sufficiently  objective  and  definite  to  be 
capable  of  practical  application ;  yet  the  extent  of  its  prac- 
tical realization  will  depend  upon  the  extent  that  conscien- 
tious and  enlightened  statesmen  hold  the  reins  of  govern- 
ment— ultimately  upon  the  moral  status  of  the  community. 
But  this  principle  obtains  definiteness  by  the  corollaries,  or 
secondary  principles,  that  flow  from  it,  and  through  whose 
application  alone  the  primary  principle  obtains  practical 
significance.  The  secondary  principles  relate  to  the  econ- 
omic effects  of  the  tax  upon  the  individual  and  thereby 
upon  the  sources  of  the  national  income,  and  involve  such 
questions  as  those  touched  upon  in  chapter  II.  For  without 
a  careful  observation  of  the  effects  of  a  tax  a  due  distribu- 
tion of  income  between  private  and  collective  needs  cannot 
be  effected. 

It  may  be  noted  in  conclusion,  that "  Equality  of  sacrifice," 
or  "  Equivalence,"  cannot  be  the  economic  principle,  since 

'  Quoted  by  Adams,  Public  Finance,  p.  28.  "  Oberstes  Princip  der  Finanz- 
wissenschaft  ist  die  wirthschaftlich  yerhaltnissmassige  Deckung  des  Staatsbedarfs 
gegeniiber  einer  nicht  minder  verhaltnissmassigen  Deckung  aller  nicht-staatlicben 
Bedarfe."  Schafflc,  Grundsatze  der  Steuerpolitik,  p.  17.  Cf.  also,  Held,  op.  cit.^ 
p.  I06. 


158  JUSTICE  IN  TAXATION  [494 

these  involve  comparison  with  others  and  have,  therefore,  an 
essentially  ethical  connotation.  Nevertheless,  economic 
principles  are  not  entirely  distinct  from  ethical  principles 
any  more  than  an  economic  basis  is  wholly  distinct  from  an 
ethical  basis.  As  an  economic  basis  and  economic  princi- 
ples result  from  a  political  basis  and  principles — from  a 
political  conception  of  the  state — so  the  realization  of  econ- 
omic principles  is  one  of  the  essential  conditions  of  the 
realization  of  an  ethical  standard  of  taxation. 

It  may  be  noted  also,  that  because  of  the  relation  of  the 
economic  to  the  political,  the  principles  of  "universality" 
and  "equality"  are  also  economic  principles.  That  is,  the 
economic  principles  must  be  applied  to  every  member  of 
the  state,  and  applied  equally,  or  in  the  same  manner,  since 
every  citizen  stands  in  the  same  relation  to  the  state.  The 
terms  have  not  here  any  specially  ethical  import,  but  result 
simply  from  the  relation  of  the  economic  to  the  political 
aspect  of  taxation.  The  ethical  character  of  taxation  will  be 
discussed  in  the  two  following  chapters. 


CHAPTER  VI 

THE  ETHICAL  BASIS  OF  TAXATION 

It  has  been  implied  throughout  the  preceding  discussion  | 
that  justice  is  the  supreme  end  and  the  supreme  test  in  the 
distribution  of  the  tax  burden,  and  that,  therefore,  there 
must  be  an  ethical  basis  on  which  principles  of  justice  may 
rest,  and  from  which  they  flow  as  a  necessary  consequence. 
Indeed,  no  notion  is  more  fundamental  to  our  conception  of 
the  nature  of  the  state,  or  to  our  conception  of  the  political 
basis  of  taxation.  The  realization  of  justice  as  a  condition 
of  the  highest  individual  development  being  a  supreme  end 
of  the  state,  justice  in  the  distribution  of  the  burden  for  the 
maintenance  of  the  state  becomes  imperative.  No  social 
relations  involve  more  fully  the  relations  of  individuals  to 
each  other,  or  the  common  relation  of  all  individuals  to  the 
whole  body  politic,  than  do  the  relations  that  are  involved 
in  taxation.  Hence  no  social  relations  are  more  deeply 
ethical  in  their  character  and  requirements.  Here  as  else- 
where, wherever  the  relations  of  man  to  man  are  involved,' 
the  ethical  end  becomes  supreme — in  conception  if  not 
always  in  fact. 

But  the  ethical  problem,  or  the  problem  of  justice  in  taxa- 
tion, is  as  difficult  as  it  is  important.  That  what  is  ethical 
is  just  is  conditioned  by  circumstances,  i.  e.,  by  the  working 
of  economic  forces  and  laws,  by  economic  conditions  and 
results,  by  ethical  standards  and  ideals — has  been  already 
admitted ;  but  the  fact  has  been  equally  insisted  upon, 
that  purely  "  economic "  results  are  not  a  test  of  the 
495]  '59 


l60  JUSTICE  IN  TAXATION  [496 

ethical,  but  rather  that  ethical  considerations  and  ethical 
standards  are  the  test  of  the  justice  of  economic  results. 
But  this  granted,  it  is  by  no  means  a  simple  problem  to 
determine  what  is  the  ethical  standard,  or  the  ethical 
basis  of  taxation ;  still  less  simple  the  determination  of  the 
principles  that  should  control  taxation. 

The  problem  of  determining  an  ethical  basis  is  tendered 
all  the  more  difhcult  from  the  lack  of  a  common  agreement 
in  primary  conceptions ;  for  our  conception  of  an  ethical 
basis  is  very  largely  determined  by  our  conception  of  the 
state.  Since,  then,  the  conception  of  the  state  assumes  a 
variety  of  forms  we  have  also  a  variety  of  conceptions  of  the 
nature  of  the  ethical  basis  of  taxation.  Nevertheless,  this 
variety  may  be  reduced  to  two  fundamental  conceptions — 
to  "  benefits  "  and  to  "  ability."  Into  one  or  the  other  of  the 
ideas  connoted  by  these  terms  every  ethical  basis  of  taxation 
may  be  resolved,  though  each  assumes  several  forms  of  ex- 
pression. In  the  earlier  period  of  taxation  and  of  economic 
thought,  "benefits"  was  the  more  commonly  accepted 
basis  of  taxation,  but  in  recent  years  the  "ability"  basis  is 
more  widely  accepted.  Let  us  consider  each  of  these  in 
turn. 

I.  The  Benefit  Theory  of  Taxation. 

The  benefit  theory  of  taxation  is,  in  part,  an  outgrowth  of 
earlier  political  and  social  conditions,  particularly  feudal 
conditions;  and,  in  part,  is  a  natural  consequence  of  the  con- 
tract theory  of  the  state,  or  of  the  conception  of  the  state  as  a 
protective  agency,  thereby  conferring  benefits  upon  individ- 
uals. This  fact  has  already  been  adverted  to,'  as  also  the 
fact  that  the  doctrine  is  still  widely  accepted,  and  is  a  com- 
monly adopted  legal  fiction.'  It  is  now  generally  discarded 
by  economists,  about  the  only  modern  school  of  economists 

*  Ante,  p.  63. 


497]  THE  ETHICAL  BASIS  OF  TAXATION  i6r 

still  upholding  this  doctrine  being  the  "  Single-Taxers" ' 
who,  like  their  predecessors,  the  Physiocrats,  uphold  the  ben- 
efit principle  of  taxation.' 

The  general  idea  underlying  this  theory  is  that  political 
basis  which  assumes  that  a  tax  is  a  payment  for  a  service  ren- 
dered by  the  state  to  the  individual.  That  is,  the  basis  of 
the  tax  is  assumed  to  be  a  "service"  or  the  "benefit"  from 
a  service ;  and  hence  it  is  concluded  that  the  tax  payment 
should  be  made  in  accordance  with  the  "service"  or  the 
"benefit"  received.  This  basis  of  taxation  we  have  already 
considered  from  both  the  political  and  the  economic  points 
of  view.  The  question  now  is :  is  this  a  just  basis  of  taxa- 
tion? This  question  may  be  best  answered  first  by  briefly 
considering  the  different  forms  which  this  basis  of  taxation  has 
assumed.  But  in  the  first  place  it  may  be  observed  that  the 
"  service"  is  ultimately  resolvable  into  the  service  of  protec- 
tion, or  the  benefits  derived  in  consequence  of  the  protection  ; 
while  the  different  forms,  that  the  basis  has  assumed  are  re- 
solvable into  either  the  cost  of  the  service  or  into  the  value  of 
the  service. 

I.  The  Cost-of- Service  Theory. — The  idea  underlying  this 
theory,  or  at  least  implied  in  it,  is  that  every  individual 
should  pay  to  the  state  the  exact  cost  of  his  protection.  It 
has  its  root,  we  think,  in  the  conditions  that  prevailed  under 
the  feudal  regime,  and  has  a  show  of  validity  in  the  poll  tax 
and  in  the  modern  fee  system.  The  idea  is  that  of  special 
services,  whereas  the  chief  services  of  the  state  are  general 
in  character,  though  it  does  perform  services  that  are  special 
to  individuals  or  to  classes  of  individuals.  For  the  latter  fees 
are  exacted,  for  the  former  taxes.  There  is,  then,  an  im- 
portant dift'erence  between  fees  and  taxes,^  and  the  principle 
that  applies  to  the  latter  is  not  applicable  to  the  former, 

*  Cf.  ante,  p.  109;  also,  Louis  F.  Post,  The  Single  Tax,  p.  14. 

*  See  Seligman,  Essays  in  Taxation,  pp.  274-282,  for  clear  distinctions. 


1 62  JUSTICE  IN  TAXATION  [498 

Taxes  have  no  relation  to  cost,  while  fees  do  "  not  normally 
exceed  the  cost  of  the  particular  service  to  the  individual."' 
Not  only  is  the  "cost"  theory  based  upon  a  wrong  con- 
ception of  the  services  of  the  state,  but  even  if  the  service  be 
regarded  as  a  service  to  the  individual,  the  individual  cost  of 
that  service  is  beyond  all  possibility  of  determination.  In- 
deed, even  in  the  case  of  special  services  for  which  "  fees  " 
are  exacted,  the  cost  of  the  "  special  service  "  cannot  be  de- 
termined ;  that  is,  cannot  be  exactly  determined  for  every 
individual.  But  even  if  the  individual  cost  could  be  deter- 
mined, it  is  more  than  questionable  if  the  expense  of  such 
special  service  should  be  wholly  covered  by  fees ;  for  the 
state  should  perform  no  service  that  is  wholly  special  to  an 
individual,  or  in  which  there  is  not  sojne  common  interest; 
and  wherever  such  common  interest  exists  some  part  of  the 
expense,  at  least,  should  be  met  by  a  tax  without  reference 
to  the  individual  cost.=  The  expense  should  be  met  by  a 
combination  of  fees  and  taxes,  and  theoretically  the  propor- 
tionate amount  of  the  fee  should  depend  upon  the  relative 
importance  of  the  special  and  the  common  interest.  For 
special  reasons,  it  is  true,  as  for  sumptuary  or  police  pur- 
poses, or  as  a  means  of  taxation,  fees  may  equal  or  exceed 
the  cost.  But  the  question  of  fees  apart,  the  cost  to  the  in- 
dividual, or  on  account  of  the  individual,  of  a  com.mon  ser- 
vice is  not  a  calculable  quantity.  Cost  of  service  cannot, 
then;  be  a  just  basis  of  taxation,  both  because  taxes  are  paid 
for  a  common  service  without  reference  to  the  cost  on  ac- 
count of  any  individual,  and  because,  even  if  there  were  such 
reference,  the  cost  could  not  be  determined. 

If,  now,  we  turn  to  the  logical  consequences  of  this  theory 
we  shall  not  find  it  any  more  satisfactory  as  a  basis  of  justice. 

'  See  Seligman,  Essays  in  Taxation,  p.  276. 

*  Cf.  Sidgwick,  Political  Economy,  p.  563.      Sidgwick  inclines  to  the  cost-of- 
service  principle,  but  thinks  "  this  principle  can  rarely  be  applied." 


499]  ^^^  ETHICAL  BASIS  OF  TAXATION  163 

The  "  services "  of  the  state,  according  to  this  theory,  we 
have  seen  to  be  the  protection  of  persons  and  property. 
Now  as  a  general  rule  there  is  no  difference,  to  speak  of,  in 
the  cost  of  protecting  persons,  considered  wholly  apart  from 
their  property.  Nevertheless,  the  expense  is  greater  for 
those  subject  to  criminal  assaults.  Strictly,  therefore,  ac- 
cording to  the  theory  of  costs,  those  who  are  so  unfortunate 
as  to  be  subjected  to  assault  should  pay  a  penalty  for  their 
misfortune  by  a  tax  in  excess  of  that  imposed  upon  those 
fortunate  enough  to  escape  assault.  It  is,  indeed,  a  question 
if  they  should  not  even  pay  a  larger  tax  than  the  criminal 
who  committed  the  assault.  But  on  the  whole,  however,  an 
equal  poll  tax,  so  far  as  it  should  be  based  upon  the  cost  of 
protecting  the  person,  would  not  be  greatly  at  variance  with 
justice.  But  the  problem  of  costs  in  the  protection  of  prop- 
erty is  by  no  means  so  simple.  The  question  is  complicated 
by  being  dependent  in  part  on  the  kinds  of  property  and  in 
part  on  the  amount  of  individual  holdings.  It  costs  more, 
for  example,  to  protect  property  in  buildings,  in  money  or 
other  tangible  forms  of  property,  than  to  protect  property  in 
land;  and,  other  things  being  equal,  the  tendency  would  be 
for  the  protection  of  a  million  dollars'  worth  of  property  in 
the  hands  of  a  thousand  individuals  to  cost  more  than  the 
protection  of  an  equal  amount  of  property  owned  by  one 
individual.  The  same  tendency  is  true  in  the  case  of  property 
that  is  widely  distributed,  compared  with  property  of  equal 
value  that  is  greatly  concentrated.  On  the  other  hand,  it 
costs  but  little  if  an)'  more  to  protect  a  home  and  contents 
costing  one  million  dollars  than  to  protect  one  costing  one- 
tenth  of  that  sum.  Thus  the  cost  basis  would  lead  us  into 
interminable  and  insoluble  difficulties,  in  some  cases  leading 
to  proportional  or  to  progressive  taxes,  in  others  to  regres- 
sive taxes.  Justice  would  have  no  place  in  such  a  system. 
But  the  most  important   reason  why  cost  of  service  is  not 


1 64  JUSTICE  IN  TAXATION  [500 

a  just  basis  of  taxation  is  because  the  state  is  necessary  to 
the  highest  development  of  the  individual  and  must  be 
maintained  regardless  of  the  cost  entailed  on  account  of  any- 
individual  member  of  it;  because  the  bond  of  membership  is 
not  a  cash  nexus,  but  a  spiritual  bond ;  because  the  obliga- 
tion to  support  and  maintain  the  government  of  the  state 
rests  upon  a  common,  or  general,  interest  (whose  costs,  as 
we  have  seen,  cannot  be  individually  determined),  not  upon 
a  special  interest ;  because,  in  fine,  tax  obligation  rests  upon 
membership  in  the  state,  not  upon  the  cost  of  any  individual 
to  the  state.'  Briefly,  cost  of  service  is  not  a  just  basis  of 
taxation  since  it  rests  upon  a  false  political  basis,  for  the 
ethical  basis,  as  we  have  seen,  must  be  in  harmony  with,  as 
it  is  dependent  upon,  the  political  basis.  The  total  tax 
must,  indeed,  equal  the  total  cost  of  the  government,  but 
this  cost  cannot  be  individualized. 

The  same  general  result  appears  in  whatever  aspect  we 
consider  the  cost-of-service  principle.  Take,  for  example, 
the  insurance  theory  of  taxation.  Here  it  is  held  that  a  tax 
is  based  upon  the  same  principle  as  the  premium  of  insur- 
ance, and  this  is  assumed  to  be  the  cost  of  the  insurance. 
But  no  insurance  premium  corresponds  to  the  cost  of  the 
insurance,  except,  possibly,  in  rare  cases  in  life  insurance. 
As  a  rule,  any  particular  insurance  premium  is  much  greater 
or  much  less  than  the  cost.  Besides,  the  premium  takes 
account  of  the  element  of  risk;  but  it  is  manifestly  impossi- 
ble for  a  government,  in  its  protective  "  insurance"  to  take 
account  of  differences  in  risk,  just  as  it  is  impossible  to  take 
account  of  differences  of  cost.  The  cost  and  the  risk  must 
be  averaged. 

Take,  again,  the  "  productive  "  theory  of  taxation,  where 

'  "  Die  Nation  giebt  als  Ganzes  die  Mitteln  fiir  ihren  Beruf  als  Staat  und  jeder 
Einzelne  muss  geben  weil  er  died  der  Nation  ist."  Helferich,  Schdnber^''s 
Handbuch,  iii,  p.  139. 


501  ]  THE  ETHICAL  BASIS  OF  TAXATION  165 

the  tax  is  regarded  as  a  necessary  part  of  the  cost  of  pro- 
duction. Here  the  cost  of  the  "  service  "  of  the  government 
on  account  of  any  particular  industry  cannot  be  determined. 
What  is  determined  is  the  cost  of  the  service  to  the  industry, 
which  cost  is  equal  to  the  tax  imposed  upon  it,  but  this  cost 
to  the  industry  has  no  definite  relation  to  the  cost  of  the 
government  on  its  account.  For  the  government  only  the 
total  cost  is  determinable.  The  productive  basis,  as  an  ex- 
clusive basis,  would,  therefore,  be  an  unjust  basis  on  the  cost 
theory.  But  it  becomes  still  more  unjust  when  we  consider 
that  the  cost  of  its  service  for  protection  is  only  a  part 
of  the  cost  of  the  service  that  it  renders.  However,  this 
basis  has  never  been  assumed  as  a  basis  for  the  distribution 

of  the  tax. 

2.  The  Value-of-Service  Theory.  Value  of  service  as  a 
basis  of  taxation  has  been  much  more  generally  accepted 
than  cost  of  service.  Indeed,  it  has  been  widely  accepted 
by  those  who  advocate  "ability"  as  a  basis  of  taxation,  the 
presumption  being  that  ability  to  pay  taxes  is  determined 
by  the  service  of  the  government  to  the  individual.  But  in 
all  such  cases,  as,  for  example,  with  Adam  Smith,  the  real 
basis  of  the  tax  is  the  value  of  the  "  service,"  ability  and 
value  of  service  being  expressions  of  the  same  thought  from 
different  points  of  view. 

What,  then,  is  meant  by  value  of  service  as  a  basis  of 
taxation?  It  is,  that  the  tax  of  every  individual  should  be 
based  upon  the  value  of  the  service  of  government  to  him ; 
or  that  the  individual  should  share  in  the  total  costs  of  gov- 
ernment in  proportion  to  the  value  of  the  benefits  that  he 
derives  from  government.  The  basis  of  the  tax  centers  in 
the  individual,  while  in  the  "cost"  theory  the  basis  centers 
in  the  state.  It  is  the  value  of  the  "  service  "  to  the  indi- 
vidual instead  of  its  cost  to  the  state. 

What,  now,  is  to  be  said  of  value  of  service  as  an  ethical 


I66  JUSTICE  IN  TAXATION  [502 

basis  of  taxation  ?  That,  like  cost  of  service,  it  cannot  be  a 
just  basis  because  it  is  an  impossible  basis.  The  value  to 
the  individual  of  the  service  of  government  is  just  as  inde- 
terminable as  the  cost  of  the  service  to  the  government  on 
account  of  the  individual.  True,  no  one  contends  that  the 
tax  should  equal  the  value  of  the  service  of  government.  To 
do  so  would,  to  say  the  least,  make  the  tax  enormously  ex- 
ceed the  cost,  for  the  absolute  utility  of  government  bears  no 
relation  whatever  to  the  costs  of  government.  Every  tax- 
payer, no  matter  how  large  his  tax,  receives  a  "consumer's 
rent "  that  is  out  of  all  proportion  to  his  tax.  Between  the 
individual  tax  and  the  value  of  the  service  that  is  given  in 
return  by  the  government,  there  is  no  comparison.  We  may 
say,  indeed,  with  Leon  Say,  that  taxes  are  the  price  of  the 
total  advantages  derived  from  the  government;'  but  this 
price  is  not  determined  by  the  value  of  the  service  to  the  tax- 
payer, as,  in  fact,  it  includes  a  large  "  consumer's  rent,"  if  we 
may  use  this  figure  in  this  connection. 

But  value  of  service  is  an  equally  impossible  basis  when 
understood  to  mean  that  the  costs  of  government  should  be 
proportioned  to  the  value  of  the  service  received  from  it,  for 
this  "  value  "  is  practically  an  unknown  quantity,  and  between 
the  known  and  the  unknown  no  ratio  can  be  established. 
Nor  are  we  any  better  ofT  if  we  suppose  that  the  tax  of  every 
individual  should  be  such  a  portion  of  the  total  costs  as  the 
value  of  the  service  that  he  receives  is  of  the  total  value  of 
service,  for  here  we  have  a  ratio  between  two  unknown 
quantities,  and  the  determination  of  the  known  by  the 
unknown. 

These  theoretical  difficulties,  however,  have  been  evaded 
by  advocates  of  the  value-of-service  theory  by  the  assump- 
tion of  different  methods  or  standards  of  determining  the 
value  of  the  "service:"  as  objectively  by  the  amount  of  ex- 

^  Leon  Say,  La  Question  des  Impots,  vol.  i,  p.  1 19. 


503]  THE  ETHICAL  BASIS  OF  TAXATION  167 

penditure,  the  amount  of  property,  or  the  amount  of  income  ; 
subjectively  by  the  law  of  marginal  utility.  The  briefest 
consideration,  however,  must  convince  us  that  in  none  of 
these  do  we  find  a  satisfactory  measure  of  the  value  of  the 
service  of  government. 

(i)  Expenditure. — It  was  a  favorite  thought  of  Hobbes 
that  expenditure,  or  consumption,  is  the  surest  test  of  the 
benefits  of  government.  One  of  the  conditions  of  maintain- 
ing peace,  says  Hobbes,  is  "to  divide  the  burthens  and 
charges  of  the  commonwealth  proportionably."  He  then 
adds  ;  "  Now  there  is  a  proportionably  to  every  man's  ability, 
and  there  is  a  proportionably  to  his  benefits  by  common- 
wealth, and  this  latter  it  is  which  is  according  to  the  law  of 
nature.  For  the  burdens  of  the  commonwealth  being  the 
price  that  we  pay  for  the  benefit  thereof,  they  ought  to  be 
measured  thereby.  And  there  is  no  reason  when  two  men 
equally  enjoying,  by  thq  benefit  of  the  commonwealth,  their 
peace  and  liberty  to  use  their  industry  to  get  their  livings, 
whereof  one  spareth  and  layeth  up  somewhat,  the  other 
spendeth  all  he  gets,  why  they  should  not  equally  contribute 
to  the  common  charge.  That  seemeth,  therefore,  to  be  the 
most  equal  way  of  dividing  the  burdens  of  the  public  charge, 
when  every  man  shall  contribute  according  to  what  he 
spendeth,  and  not  according  to  what  he  gets."  ' 

So  likewise  Petty :  "  It  is  generally  allowed  by  all  that 
men  should  contribute  to  the  public  charge  but  according  to 
the  share  and  interest  they  have  in  the  public  peace ;  that 
is,  according  to  their  estates  and  riches :  now  there  are  two 
sorts  of  riches,  one  actual,  and  the  other  potential.  A  man 
is  actually  and  truly  rich  according  to  what  he  eateth,  drink- 
eth,  weareth,  or  any  other  way  really  and  actually  enjoyeth ; 
others  are  but  potentially  or  imaginatively  rich.  .  .  .  Con- 

•  De  Corpore  Politico,  pp.  216-7. 


1 68  JUSTICE  IN  TAXATION  [504 

eluding,    therefore,    that    every    man    ought    to    contribute 
according  to  what  he  taketh  to  himself,  or  actually  enjoyeth,"  ' 

It  will  be  noticed  that  with  both  Hobbes  and  Petty  the 
measuring  of  benefits,  and  therefore  taxation,  by  consump- 
tion is  assumed  to  conform  with  justice,  as  is  implied  in  the 
use  of  the  moral  concept  "  ought."  But,  in  fact,  what  we 
personally  expend  upon  ourselves  is  a  very  inadequate 
measure  of  the  benefits  we  derive  from  government.  To 
have  the  means  of  potential  consumption  is  a  "benefit" 
little,  if  any,  less  than  actual  consumption.  Mere  posses- 
sion, however  little  one  may  expend  upon  himself,  gives 
power  and  influence  that  are  decided  assets  in  the  list  of 
benefits.  Equal  consumption  is  not  a  test  of  equal  benefits. 
But  above  all,  the  benefits  of  governmental  protection  can- 
not be  reduced  to  any  such  material  standard.  Consump- 
tion alone,  therefore,  is  not  a  just  standard  for  taxation,  even 
from  the  point  of  view  of  benefits. 

(2)  Property. — McCulIoch  follows  Thiers  in  making  prop- 
erty the  measure  of  the  benefits  of  the  "  insurance  "  guaran- 
teed by  government.  Government  being  "  established  for 
the  common  benefit  of  all  .  .  .  it  necessarily  follows  that 
every  individual  should  contribute  to  its  support  according 
to  his  stake  in  the  society,  or  to  his  means."  ^  This  notion 
that  property  is  the  measure  of  the  benefits  that  we  derive 
from  government  is  closely  allied  with  the  insurance  theory 
of  taxation — that  taxes  are  paid  for  the  insurance  of  our 
property  by  the  government.  But  this  conception  wholly 
neglects  the  benefits  derived  from  the  "insurance"  of  our 
persons.  Moreover,  as  already  pointed  out,  there  is  no 
analogy  between  the  "insurance"  of  government  and  the 
insurance  of  a  private  corporation.  The  character  of  the 
benefits  is  entirely  different ;  but  in  neither  case  are  the 
benefits  wholly  measured  by  the  amount  of  property.     In 

^  Petty,  op.  cit.,  p.  83.  *  McCulloch,  op.  cit.,  p.  1 7. 


505  'THE  ETHICAL  BASIS  OF  TAXATION  169 

the  case  of  the  benefits  of  government  the  amount  of  prop- 
erty represents  but  a  fraction  of  those  received,  even  when 
we  include,  as  we  should,  the  advantages  directly  derived 
from  property. 

(3)  Income. — A  far  more  common  standard  for  measur- 
ing the  benefits  of  government,  than  either  expenditure  or 
property,  is  found  in  income.  With  the  Physiocrats  only 
the  income  derived  from  the  produit  net  of  land  was  regarded 
as  a  measure  of  benefits,  because  only  the  holder  of  land 
enjoyed  the  benefits  of  government;  and  similarly,  the 
modern  "  single  taxers  "  confine  such  income  to  "  economic 
rent,"  and  for  the  same  reason  as  the  Physiocrats.  But 
most  advocates  of  the  benefit  theory  have  followed  Adam 
Smith  in  making  the  benefits  conditioned  by  the  revenue 
enjoyed  under  the  protection  of  the  state.  And  from  a 
purely  economic  point  of  view  of  benefits,  income  would 
seem  to  be  a  truer  measure  than  expenditure  or  property,  for 
it  represents  the  means  of  both  actual  and  potential  enjoy- 
ment. Property,  may,  indeed,  also  represent  potential  en- 
joyment, but  if  it  becomes  actual  it  can  only  be  at  the 
expense  of  future  enjoyment,  in  a  sense  that  the  use  of 
income  is  not. 

Nevertheless,  income  no  more  represents  the  value  of  the 
benefits  than  does  either  of  the  other  objective  standards. 
As  with  them,  too,  the  enjoyment  of  income  is  only  a  small 
part  of  the  benefits  of  government.  The  fact  is  that  each 
and  all  of  these  objective  standards  beg  the  whole  question 
by  assuming  that  the  benefits  are  limited  to  the  enjoyments 
from  expenditure,  from  property,  or  from  income,  yet  ex- 
pressly or  tacitly  the  benefits  in  question  are  admitted  to  be 
far  more  extensive.  No  such  objective  economic  equivalent 
of  the  value  of  the  service  is  possible.  They  do  not,  there- 
fore, lend  any  support  to  the  view  that  value  of  service  is  a 
just  basis  of  taxation. 


I70  JUSTICE  IN  TAXATION  [506 

(4)  Marginal  Utility. — Although  Sax  claims  for  his  the- 
ory that  it  holds  the  key  to  the  solution  of  all  the  problems 
involved  in  other  theories  of  taxation,  it  properly  belongs  to 
the  value-of-service  theory ;  only  with  Sax  the  value  is  sub- 
jectively determined  through  the  operation  of  the  law  of 
marginal  utility.  That  is,  the  value  of  the  service  is  deter- 
mined by  the  marginal  utility  of  the  tax,  which  is  itself  de- 
termined by  a  comparison  of  the  collective  needs  satisfied 
with  the  intensity  of  private  needs  that  might  be  satisfied  but 
for  the  tax — by  the  relative  intensities  of  collective  and  pri- 
vate needs. 

Now  if  the  satisfaction  of  collective  needs  were  determined 
in  every  respect  in  the  same  manner  as  private  needs,  much 
might  be  said  for  this  subjective  valuation  of  public  services. 
But,  in  the  preceding  chapter,  we  have  seen  reasons  for 
holding  that  what  is  true  of  private  needs  is  not  necessarily 
true  of  collective  needs.  The  marginal  utility  of  the  goods 
that  would  be  enjoyed  in  the  satisfaction  of  private  needs 
may,  indeed,  express  the  subjective  value  of  those  needs,  but 
this  marginal  utility  does  not  express  the  value  of  the  col- 
lective needs.  This  value  cannot  be  determined  subjectively 
any  more  than  it  can  be  determined  objectively.  It  cannot, 
therefore,  form  a  basis  for  taxation,  still  less  an  ethical  basis. 

So  far  we  have  only  negative  proof  that  value  of  service  is 
not  a  just  basis  of  taxation.  But  there  is  even  stronger  dis- 
proof of  this  theory,  which  may  be  stated  in  a  word.  It  is, 
that  the  whole  theory  is  based  upon  an  entirely  false  concep- 
tion of  the  relation  of  the  individual  to  the  state,  and  so  upon 
an  entirely  false  conception  of  the  nature  of  the  obligation 
of  the  individual  to  support  the  state.  The  ethical  basis 
must  connote  a  more  distinctively  ethical  idea  than  is  con- 
tained in  the  principle  of  quid  pro  quo,  of  an  economic  ex- 
change of  service  for  service. 


507]  THE  ETHICAL  BASIS  OF  TAXATION  171 

II.  Ability  as  an  Ethical  Basis  of  Taxation 

Whatever  the  accepted  basis  of  taxation,  it  is  always, 
directly  or  indirectly,  implied  that  the  ultimate  end  sought 
is  "  distributive  justice."  But  more  and  more  the  conviction 
has  gained  prevalence  that  this  end  cannot  be  attained  by  a 
purely  political,  or  purely  economic  basis,  but  only  upon  a 
basis  of  distinctively  ethical  connotations ;  and  hence  the 
more  and  more  is  it  realized  that  "  benefits,"  at  bottom  an 
economic  conception,  does  not  meet  this  requirement.  On 
the  contrary,  the  term  that  is  universally  used  to  express  the 
basis  of  the  ethical  idea  of  distributive  justice  in  taxation  is 
"faculty,"  or  "ability,"  with  the  Germans  "ability  to  pay" 
(Leistungsfahigkeit). 

The  term  ability  {facultas)  is  not,  however,  new  to  finan- 
cial science,  as  Bodinus,  as  early  as  the  sixteenth  century, 
declared  for  a  universal  tax  based  on  ability.  We  have  seen, 
too,  that  economists  who  have  accepted  the  benefit  principle 
have  followed  Adam  Smith  in  making  it  equivalent  to  ability. 
That  is,  ability  is  determined  by  the  benefit  received,  the 
benefit  determining  the  ability,  not  the  ability  the  benefit. 
But  this  view  of  ability  begs  the  question;  it  gives  a  new 
term  but  not  a  new  basis.  But  what  we  want  is  a  change  of 
ideas — a  change  of  basis — since  the  benefit  principle  no 
longer  satisfies  the  moral  sense.  The  best  term,  as  also  the 
common  term,  for  expressing  this  new  basis  is  "ability"; 
but  whatever  its  former  associations,  it  must  be  wholly  freed 
from  any  alliance  with  the  benefit  principle.  This  is  the 
present  tendency,  the  benefit  principle  and  the  ability  prin- 
ciple being  regarded,  as  they  should  be,  as  two  entirely  dis- 
tinct conceptions,  and  not  merely  different  names  for  the 
same  thing. 

But  although  the  term  "ability "  is  the  best  expression 
that  we  have  of  the  ethical  basis  of  distributive  justice  in 
taxation,  it  is  not  altogether  satisfactory,  because  of  its  vague- 


172  JUSTICE  IN  TAXATION  [508 

ness  and  indefiniteness  of  meaning.  No  single  term,  however, 
can  express  fully  all  of  the  principles  demanded  by  justice, 
though  it  may  contain  them  by  implication,  as  the  logical 
result  of  the  development  of  its  own  content.  It  is  because 
the  term  "  ability "  does  meet  this  requirement  that  it  is, 
upon  the  whole,  a  satisfactory  basis  of  taxation.  The  ulti- 
mate basis  of  taxation,  which  we  have  all  along  contended 
is  ethical,  must  carry  with  itself  grounds  for  the  modification 
and  limitation  of  the  two  cardinal  principles — universality 
and  equality — which  is  not  the  case  with  the  political  or  the 
economic  basis.  With  these  the  principle  of  universality  has 
no  exception,  and  the  principle  of  equality  no  definite  con- 
tent. The  content  of  "  ability,"  when  its  implications  are 
fully  developed,  provides  for  both.  It  is,  therefore,  a  dis- 
tinctively ethical  basis.  Or  ability  is  the  ideal  ethical  basis 
of  taxation.  Its  full  significance,  however,  can  appear  only 
as  we  proceed  with  the  development  of  our  thesis  in  this  and 
in  the  following  chapter. 

But  there  are  other  reasons  why  "ability"  constitutes  the 
ethical  standard  of  taxation.  It  is  not  a  mere,  vague  senti- 
ment, but  is  the  direct  expression  and  outcome  of  the  ethi- 
cal nature  of  the  individual  and  of  the  ethical  relations  of 
individuals  in  the  state  and  to  the  state.  As  more  fully 
stated  by  Cohn  :  "  The  demand  of  equity  that  individuals  are 
to  pay  in  proportion  to  their  varying  pecuniary  ability,  is 
accepted  so  unresistingly  within  the  field  of  the  public  econ- 
omy for  the  reason,  in  the  first  place,  that  a  computation  of 
proportional  cost  and  benefit  is,  in  regard  to  many  very 
essential  services,  impossible ;  and  in  the  second  place,  and 
more  especially,  because  the  more  fundamental  phases  of  the 
public  activity  in  some  degree  condition  the  very  existence 
of  the  individual  in  society,  so  that  it  appears  right  and  just 
that  these  fundamental  conditions  of  human  social  life  should 
be  intimately  bound  up  with  the  total  personal  and  economic 


509]  THE  ETHICAL  BASIS  OF  TAXATION  173 

strength  of  each  individual.  The  appeal  to  the  principle  of 
the  pecuniary  ability  of  the  individual  in  matters  of  national 
concern  touches  our  sense  of  equity  so  directly  and  irresisti- 
bly because  it  is  a  principle  of  wider  scope  than  that  of  the 
economic  field  alone,  and  is  but  a  special  application  of  the 
broad  principle  of  moral  solidarity."' 

This  view  is  not  only  in  harmony  with,  but  it  is  the  direct 
logical  consequence  of,  the  conception  of  the  state  outlined 
in  the  second  chapter.  The  importance  of  society  to  the  in- 
dividual that  he  may  become  truly  a  person,  the  paramount 
importance  of  the  political  organization  of  society — of  the 
state — to  the  development  of  the  highest  social  relations  and 
the  fullest  realization  of  the  ends  of  social  and  individual  life, 
the  spiritual  and  ethical  nature  of  these  relations  growing  out 
of  the  spiritual  and  ethical  nature  of  man  ;  in  a  word,  the  con- 
ception of  man  in  society  and  the  state  makes  it  a  demand, 
both  of  the  reason  and  the  ethical  sense,  that  every  member 
of  the  state  should  contribute  to  its  support  and  maintenance 
in  proportion  to  his  ability  to  pay ;  or  the  full  impHcation  of 
such  a  conception  carries  with  it  the  obligation  upon  every 
member  of  the  state,  that  he  ought  so  to  contribute — that  is, 
according  to  his  ability.  It  is  not  enough  that  there  is  a 
soHdarity  of  interests — a  community  of  interests — but  be- 
cause there  is  a  "moral  solidarity" — a  community  of  inter- 
ests of  ethical  beings — that  ability  is  so  "irresistibly" 
accepted  as  the  ethical  basis  of  taxation.' 

However  vague,  then,  the  term  "  ability  "  may  be,  it  is 
clearly  the  one  term  that  most  fully  expresses  the  tax  obli- 
gation that  rests  upon  the  citizens  of  a  state.  For  a  tax 
according  to  ability,  as  a  universal  proposition,  implies  just 
that  relation  to  others  that  is  implied  in  a  moral  solidarity. 
Further,  ability  to  pay  implies  that  the  ability  is  relative  to 
persons,  and   thereby   gives   emphasis   to   the   fact,  already 

>  The  Science  of  Finance,  p.  297.  *  Cf.  Adams,  Public  Finance,  p.  330. 


174  JUSTICE  IN  TAXATION  [510 

pointed  out,  that  the  tax  obligation  can  rest  only  upon  per- 
sons, since  on\y  persons  can  have  a  membership  in  and  are 
capable  of  obligations  to  the  state.  True,  a  tax  involves 
property,  but  property  as  incidental  to  a  person.  Property, 
we  have  said,  is  the  person  objectified,  and  a  tax  upon  prop- 
erty is,  therefore,  a  tax  upon  persons.  But  the  obligation  is 
not  upon  the  property,  but  upon  the  person,  as  the  term 
ability  implies.  The  term  "  ability,"  moreover,  has  the  merit 
of  implying  more  than  personal  obligation.  Its  content  is 
positive  in  character,  and  carries  with  it  the  idea  of  active 
participation  in  the  support  of  the  state,  corresponding  with 
active  participation  in  the  general  ends  of  the  state. 

But  after  all  that  is  said,  ability  to  pay  is  a  relative  con- 
ception. In  the  first  place,  it  implies  relativity  to  the  ability 
of  others;  a  relativity  that  follows  from  the  recognition  that 
the  tax  obligation  that  rests  upon  self,  likewise  rests  upon 
others  because  it  rests  upon  persons,  and  because  others, 
equally  with  the  self,  are  recognized  as  persons.  In  the 
second  place,  the  term  is  relative  to  personal  wants,  for 
ability  to  pay  taxes  has  no  meaning,  or  at  least  lacks 
in  significance,  except  with  reference  to  the  relative  ability 
to  satisfy  collective  and  personal  wants.  For,  unless  the 
paramount  personal  wants  are  satisfied,  there  can  be  no 
tax  for  the  satisfaction  of  collective  wants.  Besides,  the 
person  must  be  given  first  consideration,  since  the  whole 
exists  for  the  sake  of  the  person — for  the  individual.  Ethical 
considerations,  in  other  words,  re-enforce  the  economic'  In 
the  third  place,  since  the  tax  and  the  satisfaction  of  private 
wants  require  economic  goods,  ability  to  pay  is  relative  to 
some  form  of  material  wealth.  In  brief,  "  ability,"  as  a  basis 
of  taxation,  involves  the  relation  of  one's  economic  wealth  to 
his  personal  and  collective  wants,  compared  with  the  similar 
relation  of  every  other  member  of  the  state. 

^  Cf.  ante,  p.  143  et  seq. 


5ii]  THE  ETHICAL  BASIS  OF  TAXATION  175 

It  is  around  these  relations  involved  in  ability — relation  to 
others,  to  self,  and  to  economic  goods — that  the  whole  prob- 
lem of  just  distribution  of  the  tax  burden  revolves.  Only  as 
the  content  of  ability  in  these  relations  is  gradually  unfolded 
are  we  able  to  get  at  the  full  meaning  of  ability,  as  only  in 
their  development  are  we  able  to  discover  the  just  principles 
of  taxation.  For  if  ability  be  the  true  ethical  basis  of  taxa- 
tion it  must  contain  within  itself  the  ethical  principles  of 
taxation,  just  as  the  acorn  contains  the  oak ;  so  that  in  de- 
veloping its  meaning  we  are  developing  the  principles  in- 
volved, or  implied,  in  it.  Principles  of  justice  are,  as  it  were, 
attributes  of  the  basis  of  justice. 

It  is  in  the  development  of  these  principles  that  consists 
the  most  important  and  the  most  difficult  part  of  the  prob- 
lem of  justice  in  taxation.  For  although  the  principles  must 
have  their  root  in  the  basic  idea — ability — and  be  developed 
logically  from  it,  differences  of  point  of  view  or  of  interpre- 
tation may  lead  to  opposing  or  conflicting  results.  We 
shall,  nevertheless,  attempt  to  develop  these  principles  as 
they  appear  to  us  as  the  logical  consequences  of  the  ideas 
most  naturally  connected  in  the  term  "  ability."  The  re- 
mainder of  the  present  chapter,  however,  will  be  devoted  to 
a  review  of  opinions  respecting  the  relation  of  ability  to 
property,  to  income,  and  to  subjective  sacrifice,  at  the  same 
lime  indicating  the  limitations  of  each. 

I.  Ability  and  Property. — The  most  natural,  as  also  the 
most  obvious,  test  of  economic  ability  is  the  amount  of 
property  possessed.  Ability  —  faculty  {facultas)  —  has 
throughout  the  centuries  been  associated  with  the  idea  of 
property — economic  wealth.  Cicero  somewhere  makes /rt:c- 
ultas  synonymous  with  wealth,  or  possessions,  and  Coulanges 
points  out  that  in  the  ninth  century  facultas  signified  one's 
entire  property.'     So  again  in  the  sixteenth  century,  Bodinus, 

^  Coulanges,  The  Origin  of  Properly  in  Land,  p.  72. 


176  JUSTICE  IN  TAXATION  [512 

in  opposing  the  privileges  of  the  upper  classes  that  then 
prevailed,  declared  that  taxes  should  be  universal,  and  should 
be  borne  equally  by  all  classes  of  citizens  according  to  their 
ability,  or  faculty  {qicae  in  omnes  orduies  pro  singulorum 
faciiliatibiis  exaeqiiantur),  which  he  explains  to  mean  ac- 
cording to  their  wealth,  or  fortune  {pro  cujtisqiie  opibus  ac 
fortunis).^ 

Thus  ability — faculty — and  property  had  long  been  inter- 
changeable terms  when  ability  was  first  made  a  basis  of  tax- 
ation ;  so  that  it  was  one  and  the  same  thing  whether  the 
basis  was  considered  to  be  property  or  ability.  Still,  the 
root  idea  was  that  the  tax  should  be  based  upon  ability  to 
pay,  but  that  this  ability  was  measured  by  the  amount  of 
property  or  fortune  possessed.  Now  there  can  be  no  doubt 
that  fortune,  or  property,  was  a  fair  representation  of  ability, 
and  so  an  approximately  fair  basis  of  taxation,  under  the 
primitive  economic  conditions  that  prevailed  in  early  indus- 
trial society ;  when  there  were  no  great  inequalities  of  for- 
tune, industries  were  little  diversified  and  wealth  consisted 
almost  wholly  of  property  in  land,  social  wants  were  few,  and 
social  conditions  were  upon  an  approximate  equality.  But 
under  the  conditions  of  modern  industrial  and  social  life, 
where  these  relations  no  longer  hold,  and  where  there  is  a 
growing  class  of  propertyless  producers,  or,  at  least,  produc- 
tive agents  without  capital,  it  must  be  clear  that  property 
alone  affords  a  very  inadequate  test  of  ability  ;  for  the  ability 
to  satisfy  wants — the  real  test  of  ability — and,  therefore,  the 
ability  to  contribute  to  the  support  of  the  state,  is  not  con- 
ditioned by  the  personal  ownership  of  property.  Besides, 
even  where  property  is  the  source  of  the  means  of  satisfying 
wants  there  is  not  necessarily  the  same  proportionate  power 
of  satisfaction,  since  the  means  are  not  necessarily  propor- 
tionate to  the  amount  of  property.     For  not  only  is  some 

*  Quoted  by  Meyer,  op.  cit.,  p.  4. 


513]  THE  ETHICAL  BASIS  OF  TAXATION  177 

property    unproductive    of    further    means,    but    productive 
property  is  not  always  equally  productive. 

Nevertheless,  property  is  an  index  of  ability,  even  "  un- 
productive "  or  consumable  property ;  for  the  amount  and 
character  of  the  property  that  we  possess  indicates  to  a  very 
large  extent  our  power  of  satisfying  our  wants,  and,  there- 
fore, our  tax  ability.  It  is,  indeed,  as  an  "  index,"  not  as  an 
absolute  measure,  that  property  is  regarded  by  those  who 
hold  it  to  be  synonymous  with  ability,  though  the  index 
is  necessitated  more  from  practical  than  from  theoretical 
grounds.  Baer,  for  instance,  would  base  all  taxes  upon 
property,'  because  property  is  a  measure  of  ability.  To  get 
at  a  more  accurate  relation  between  property  and  ability, 
however,  he  divides  property  into  three  classes — productive 
property,  unproductive  property  and  property  whose  desti- 
nation is  not  yet  determined  upon."  For  each  class  there  is 
an  index,  or  indices,  since  the  amount  cannot  be  accurately 
determined  directly.  For  example,  the  index  for  productive 
property  is  capitalized  interest,  while  for  unproductive  prop- 
erty the  indices  are  the  articles  of  common  consumption,  the 
"  ability  "  of  this  class  of  property  being  reached  by  con- 
sumption taxes — on  wines,  spirits,  tobacco,  etc. 

But  even  as  an  index  the  property  test  is  wanting  in  im- 
portant particulars.  It  is  true  that  property  as  a  basis  of 
taxation  does  not  mean  that  the  tax  should  be  paid  out  of 
property,  otherwise  the  property,  and  with  it  the  ability, 
would  soon  be  exhausted.  The  tax  is  presumed  to  be  only 
nominally  upon  property ;  in  reality  it  is  upon  income. 
That  is,  the  "  index  "  is  an  index  of  income,  and  the  real 
basis   of  ability  is  thereby  assumed   to  be  income,  and   not 

^  "  II  criterio  per  giudicare  della  parita  delle  condizione  o  di  loro  rapporti  in  piu 
o  in  meno  non  puo  essere  altro  che  quello  dell,  importanza  delle  sostanze,  dell' 
avere,  dei  beni  che  si  possegono."     L"  Avere  e  V  Imposta,  p.  19. 

'  Ibid.,  p.  32  et  seq. 


178  JUSTICE  IN  TAXATION  [514 

property.  But  for  practical  reasons  Baer  and  others  would 
base  the  tax  upon  property  as  the  best  means  of  ascertain- 
ing income,  it  being  a  practical  impossibility  to  determine 
real  income  by  direct  methods.  This,  too,  is  the  common 
practice  and  is  a  necessity  for  many  forms  of  income.  But 
it  is  not  less  true  that  many  forms  of  property  are,  in  prac- 
tice, very  imperfect  indices  of  income,  or  ability;  as  note, 
for  example,  the  universal  failure  of  personal  property  taxes. 
For  income  not  derived  from  property  a  more  accurate 
test  is  consumption,  and  consumption  taxes,  such  as  those 
on  spirits,  tobacco  and  other  luxuries,  are  a  more  accurate 
test  of  ability. 

However  important,  then,  property  may  be  as  an  index  to 
income,  and  therefore  of  ability,  it  needs  to  be  supple- 
mented by  other  tests  to  reach  the  full  tax  ability.  It  is 
theoretically  defective  because,  being  indirect,  it  affords 
only  a  proximate  test  of  the  power  to  satisfy  wants ;  it  is 
practically  defective  because  many  forms  of  property  cannot 
be  discovered  by  the  tax  assessor.  We  cannot,  therefore, 
subscribe  to  the  contention  of  Menier,  that  the  state  has  no 
right  to  inquire  into  what  one  makes  or  does,  but  only  into 
the  share  of  the  national  fortune  that  he  possesses.' 

2.  Ability  and  Income. — Since  Adam  Smith  first  pub- 
Hshed  his  famous  canons  of  taxation,  property,  as  a  measure 
of  ability,  has  been  commonly  interpreted  to  mean  revenue, 
or  income.  That  there  is,  indeed,  some  doubt  what  was  in 
the  mind  of  Smith  when,  in  explaining  the  term  "  abilities," 
he  wrote  :  "  That  is,  in  proportion  to  the  revenue  which  they 
respectively  enjoy  under  the  protection  of  the  state,"  may 
be  admitted.'^  But  however  this  may  be,  it  has  generally 
been  understood  to  mean  that  ability  is  measured  by  income, 
and  it  is  with  this  meaning  that  the  first  canon  has  been  so 

1  Cf.  Menier,  op.  cit.,  p.  196. 
«  Op.  cit.,  p.  414. 


515]  THE  ETHICAL  BASIS  OF  TAXATION  179 

universally  accepted,  it  being  assumed  that  Smith  stood  for 
the  principle  of  "  ability  "  rather  than  that  of  "  benefits." 

However  true  it  may  be  that  there  are  circumstances 
when  it  is  necessary  to  use  property  as  a  measure  or  index, 
of  income,  there  can  be  no  doubt  but  that  income  is  a  truer 
measure  of  ability  than  is  property.  For  in  income  is 
represented  the  actual  earning  power  of  the  individual,  the 
realized  capacity  of  providing  the  material  means  for  the 
satisfaction  of  wants.  Moreover,  income  as  a  measure  of 
ability  is  in  harmony  with  the  fact  we  have  so  often  em- 
phasized, that  the  tax  is  a  tax  upon  the  person — upon  his 
ability  to  satisfy  his  wants. 

But  after  all,  income  is  a  very  vague  and  indefinite 
measure  of  ability.  If  we  are  to  measure  ability  by  income 
we  must  know  what  is  meant  by  income ;  also,  the  character 
of  the  income  that  determines  the  tax  ability,  that  is,  what 
portion  of  the  total  receipts  of  the  individual  constitutes  his 
taxable  income. 

(i)  Meafiing  of  Income. — By  income  is  generally  un- 
derstood the  returns  that  come  in  to  the  individual  as  the 
result  of  his  economic  activities,  or  from  his  control  of 
the  economic  activities  of  others.  It  does  not,  however, 
include  the  total  receipts  of  an  industry.  These  are  known 
as  "  gross  incomes."  Income,  properly  so  called,  is  the 
"net  income"  that  results  after  deducting  from  the  gross 
income  the  costs  of  production  and  the  maintenance  of  the 
plant.  That  part  of  the  gross  income  that  is  absorbed  in 
costs  and  maintenance  is  not  a  return  that  is  at  the  disposal 
of  the  individual.  The  expenditure  is  essential  that  there 
may  be  any  return,  but  it  does  not  of  itself  add  anything  to 
that  which  was  already  possessed.  Income,  in  an  economic 
sense,  implies  an  increase  of  wealth  in  addition  to  that  which 
is  already  possessed,  and  which  comes  in  within  a  definite 
period  of  time,  giving  an  increased  power  of  satisfying  wants 


l8o  JUSTICE  IN  TAXATION  [516 

within  that  period  of  time.     Only  net  income  is  such  an  in- 
come. 

But  the  term  "income  "  has  been  given  a  more  extended 
meaning,  and  has  been  made  to  include  the  indirect  income 
from  enjoyment,  or  use,  of  so-called  "  unproductive"  pro- 
perty, thus  giving  emphasis  to  periodic  enjoyment  rather 
than  to  periodic  new  acquisitions.  All  income,  indeed,  is 
valuable  only  as  it  affords  means  of  enjoyment,  to  the  satis- 
faction of  wants.  Income  is  a  means,  satisfaction  the  end. 
Hence  possession  of  property  is  by  some  regarded  as  an 
addition  to  the  money  income  derived  from  gainful  occupa- 
tions, for  its  possession  enables  a  given  money  income  to 
satisfy  the  wants  that  otherwise  remain  unsatisfied.  Such 
possessions  are  houses  (occupied  by  the  owner)  and  their 
furnishings.  Take,  for  example,  A  and  B,  having  equal 
money  incomes,  but  A  owning  his  house,  while  B  rents  a 
house  of  equal  value,  say  at  five  hundred  dollars  per  annum. 
Clearly,  five  hundred  dollars  represent  the  excess  of  A's 
income  over  B's,  as  measured  in  the  satisfaction  of  wants. 
That  is,  A  has  five  hundred  dollars  to  spend  for  satisfactions 
that  B  cannot  enjoy,  has  five  hundred  dollars  more  to  dis- 
pose of  than  B  has.  His  "  ability,"  therefore,  is  greater  than 
B's  to  the  extent  of  five  hundred  dollars,  other  things  being 

equal. 

That  the  same  is  true  of  household  furnishings,  paintings, 
or  other"  unproductive"  property  of  this  class,  is  not  equally 
clear.  True,  if  enjoyment  is  the  test  of  income,  such  prop- 
erty is  an  advantage  to  income,  just  as  is  the  ownership  of  a 
home.  Yet  the  two  cases  appear  to  us  to  be  quite  dilTerent, 
particularly  in  the  case  of  luxuries.  The  enjoyment  of  these 
is  not  income  in  the  sense  that  house  rent  saved  by  owner- 
ship is  income.  They  are  enjoyments  procured  by  means 
of  income,  but  are  not  an  addition  to  income — do  not  save 
income — in  the  sense  that  this  is  true  of  house  rent  saved. 


517]  THE  ETHICAL  BASIS  OF  TAXATION  181 

As  a  rule  (where  not  from  gift  or  inheritance)  they  are  an 
index  of  income,  but  not  themselves  income.  They  do  not 
increase  ability;  on  the  contrary,  they  decrease  it.  Neces- 
sary household  furniture  should,  perhaps,  be  excluded  from 
this  class,  but  from  the  practical  impossibility  of  determin- 
ing where  the  necessity  ends  and  the  luxury  begins,  no  dis- 
tinction should  be  made.  If,  however,  with  Cohn  we  regard 
luxuries  as  "  income  consumed  in  kind,"  '  we  must  admit 
with  Meyer  that  its  value  "  is  impossible  to  reckon."  ^ 

The  mistake,  we  are  inclined  to  think,  lies  in  making  en- 
joyment the  sole  criterion  of  income.  Because  income  has 
value  only  as  it  is  a  means  of  enjoyment,  it  does  not  follow 
that  all  means  of  enjoyment  are  income.  If  such  is  the  test 
of  income,  then  there  is  little  that  is  not  income.  All  con- 
sumable goods  would  be  income — food,  clothing,  shelter, 
etc,  etc.  Yet  how  small  would  be  the  income  of  the  miser, 
however  large  his  hoardings. 3  This  is  a  needless  confusion 
of  ideas.  For  our  purposes,  at  least,  luxuries  should  not  be 
regarded  as  income,  but  only  as  indices  of  income,  and  this 
is  really  the  way  in  which  Cohn  regards  them.*  The  income 
that  we  are  seeking  is  the  income  that  brings  in  annually 
positive  acquisitions  of  material  goods,  disposable  for  the 
satisfaction  of  wants,  and  whether  the  acquisition  is  direct 
or  indirect.  Luxuries,  we  repeat,  do  not  constitute  such  an 
income.  They  do  not  increase  the  sum  of  disposable  goods 
in  the  sense  that  this  is  true  of  the  ownership  of  a  house. 
They  represent  satisfactions  enjoyed — income  expended — 
but  they  add  nothing  to  ability,  but  only  indicate  its  extent. 

*  Cohn,  op.  cit.,  p.  359.  *  Meyer,  op.  ciL,  pp.  327-8. 

*  Cf.  Rogers'  criticism  of  Adam  Smith's  first  canon  in  note  to  his  edition  of 
Wealth  of  Nations,  p.  414.  Much  of  this  criticism  is  strained,  particularly  where 
Rogers  concludes  that  if  the  emphasis  of  Smith  is  on  "  protection,"  then  women 
and  children  should  pay  heavier  taxes.  The  protection  clearly  refers  to  "  revenue," 
not  to  persons. 

*  Cf.  for  example,  op.  cit,,  pp.  360-1. 


1 82  JUSTICE  IN  TAXATION  [518 

(2)  Taxable  Income. — If  we  are  right  in  our  determination 
of  the  nature  of  income,  we  have  next  to  inquire  what  is  the 
character  of  taxable  income,  the  income  that  determines  tax 
ability.  Evidently  this  cannot  be  gross  income;  for  this 
would  be,  in  effect,  a  tax  upon  the  source  of  income,  whose 
tendency  would  be  the  gradual  extinction  of  income,  of  satis- 
factions, and  thereby  of  ability.  Costs  and  maintenance 
should,  therefore,  be  rigidly  excluded  from  taxable  income.' 
(This  is  not  saying  that  for  practical  reasons  there  should 
not  be  nominal  taxes  on  gross  income  or  capital.)  What  is 
left  after  these  deductions  is  a  net  income.  This,  or  some 
part  of  it,  must  then  be  the  taxable  income,  the  income  that 
determines  tax  ability.  Whether  it  is  the  whole  or  a  part 
only  of  the  net  income  that  is  the  taxable  income,  economists 
do  not  agree. 

With  the  earlier  economists,  following  the  Enghsh  school, 
the  taxable  income  was  held  to  be  the  "pure"  income — the 
net  income  minus  the  necessary  cost  of  subsistence.  That 
is,  there  was  assumed  to  be  no  ability  to  pay  taxes  until  the 
income  exceeded  that  required  to  supply  the  necessaries  of 
life,  since  in  the  satisfaction  of  wants  there  is  no  "  clear " 
income  until  the  stage  of  enjoyments  is  reached.^  This 
view  of  income,  it  is  true,  is  peculiar  rather  to  the  benefit 
than  to  the  ability  theory  of  taxation,  it  being  assumed  that 
there  can  be  no  benefits  of  government  until  after  the  means 
of  subsistence  are  provided  for.  But  it  has  its  advocates 
also  in  those  who  accept  the  ability  basis  of  taxation,  and,  as 
we  shall  see  later,  not  without  much  show  of  reason. 

But  largely  through  the  influence  of  the  German  econo- 
mists, the  net  income  is  now  far  more  generally  accepted  as 
the  true  taxable  income ;   at  least  nominally  so.     That  is,  it 

1 "  Man  darf  die  Henne  nicht  schlachten  welche  goldene  Eier  legt."     Schaffle, 
Grundsdtze,  p.  57. 
'  Cj.  Stein,  op,  cit.,  p.  230. 


519]  THE  ETHICAL  BASIS  OF  TAXATION  183 

is  considered  as  the  theoretical  ideal,  but  is  negatived  as  an 
ideal  by  the  admission  of  exemptions.  According  to  Wag- 
ner, the  "net"  income  theory  is  the  logic  of  the  financial 
view-point,  while  the  ""clear"  income  theory  is  the  logic  of 
the  social-political  view-point.'  The  chief  defense  of  the 
net  income  theory  is  found  in  the  indispensableness  of  the 
state  to  the  individual.  Being  a  necessity,  it  should  be 
placed  upon  an  equality  with  other  necessities  in  respect  to 
satisfaction.  This  would  seem  to  follow,  too,  from  the 
nature  of  the  state  as  we  have  regarded  it;  also  from  both 
the  political  and  the  economic  basis  of  taxation.  That  is, 
from  the  universal  obligations  of  citizenship,  and  from  the 
seemingly  relative  importance  of  collective  and  private  wants. 
When,  however,  the  taxable  income  is  viewed  from  the 
standpoint  of  ability  it  is  not  so  self-evident  that  it  is  repre- 
sented by  net  income;  unless,  indeed,  we  assume  that  net 
income  measures  ability,  in  which  case  we  have  but  a  vicious 
circle.  If,  as  we  think  Schafifle  justly  says:  "Ability  is  an 
expression  for  how  much  a  taxable  unit  can  give  up  to  the 
support  of  the  state  without  injury  to  his  own  relative  sup- 
port,"^ it  is  questionable  if  there  is  a  taxable  income — 
ability — until  a  "clear"  income  appears — an  income  over 
and  above  the  necessities  of  life.  Whether,  however,  the 
taxable  income  is  a  "net"  or  a  "clear"  income;  whether, 
that  is,  ability  is  determined  by  net  or  clear  income,  is  a 
question  that  involves  political  and  ethical  considerations 
that  are  inseparable  from  the  problem  of  the  exemption  of 
the  minimum  of  subsistence.  In  other  words,  it  involves 
the  problem  of  the  justice  of  exemptions.  We  may,  there- 
fore, postpone  further  discussion  of  this  question  until  we 
take  up  the  problem  of  exemptions  in  the  following  chapter. 
But  it  is  a  question,  also,  whether  or  not  ability  is  affected 
by  source,  permanence,  and   size  of   income ;   but  this  is  a 

'  Op.  cii.,'Tp.  330.  *  Grundsdize,  p.  23. 


1 84  JUSTICE  IN  TAXATION  [5 20 

question  of  rates,  which  like  that  of  exemption,  is  a  question 
of  principles,  and  will,  therefore,  also  be  deferred  to  the  fol- 
lowing chapter.  Here,  we  wish  only  to  emphasize  the  fact 
that  a  prime  condition  of  "  ability  "  is  a  net  income.  That 
it  is  not  the  only  condition  we  shall  see  later. 

A  somewhat  dififerent  criterion  of  ability-determining  in- 
come was  advocated  by  the  late  President  Walker.  Accord- 
ing to  him  ability  is  determined,  not  by  actual  income  but 
by  the  capacity,  or  faculty,  to  produce  income ;  not  by 
realized  but  by  realizable  income.  Accordingly  he  defined 
ability  (he  used  the  term  faculty)  as  the  "  native  or  acquired 
power  of  production,"  a  tax  on  this  basis  being  the  "  most 
equitable  form  of  public  contribution."'  Property,  expendi- 
ture, and  revenue  all  come  in  for  criticism  as  a  basis  of 
taxation.  Property,  because  a  tax  on  property  "  constitutes 
a  penalty  on  saving  (p.  3);  expenditure,  because  "the 
revenue  rights  of  the  state  attach  equally  to  every  portion  of 
private  revenue,  irrespective  of  the  consideration  whether 
any  such  portion  is  to  be  spent  or  saved"  (p.  11),  and 
because  any  exemption  of  expenditure,  "on  the  ground  that 
it  is  to  be  used  for  the  public  good,"  involves  the  right, 
which  may  become  a  duty  of  the  state,  "  to  see  that  such 
wealth  is,  in  fact,  in  all  respects  and  at  all  times  put  to  the 
best  possible  use;"  and  it  is  added:  "If  this  is  not  social- 
ism of  the  rankest  sort,  1  should  be  troubled  to  define 
socialism"  (p.  12);  revenue,  because  "the  revenue  tax 
lays  the  heavier  burden  upon  him  who  most  fully  and  dili- 
gently uses  his  abilities  and  opportunities.  It  even  accepts 
indolence,  shiftlessness  and  worthlessness  as  a  sufficient 
ground  for  excuse  from  public  contributions"  (p.  14).  In- 
deed, "  to  tax  wealth  instead  of  revenue  is  to  put  a  premium 
upon  self-indulgence,  in  the  form  of  expenditure  for  present 
enjoyment,"  while  "  to  tax  revenue  instead  of  faculty  is  to 

1  Francis  A.  Walker, "The  Basis  of  Taxation,"  in  Polit.  Set.  Quart.,  vol.  iii,  p.  14. 


52 1 ]  THE  ETHICAL  BASIS  OF  TAXATION  185 

put  a  premium  upon  self-indulgence  in  the  form  of  indolence, 
the  waste  of  opportunities,  the  abuse  of  natural  powers." 
Hence,  "  a  faculty  tax  constitutes  the  only  theoretically  just 
form  of  taxation,  men  being  required  to  serve  the  state  in 
the  degree  in  which  they  have  ability  to  serve  themselves,"  ' 
any  departure  from  this  rule  constituting  a  departure  from 
justice. 

As  a  purely  theoretical  ideal  this  view  of  the  tax  basis  is> 
perhaps,  sound.  It  has  the  merit  of  emphasizing  the 
necessity  of  positive  effort ;  it  justly  expresses  the  moral 
obligation  resting  upon  every  citizen  to  put  forth  his  fullest 
energies  and  powers  to  the  support  of  the  state  on  whose 
maintenance  depends  his  civilized  existence;  it  justly  empha- 
sizes, also,  the  moral  obligation  resting  upon  the  individual 
because  of  his  ethical  relations  to  his  fellow  men,  growing 
out  of  his  and  their  natures  as  spiritual  beings — as  persons — 
and  the  identity  of  their  mutual  relations  to  the  state. 

But  if  this  is  the  ideal',  it  is  an  ideal  to  be  realized  only  in 
the  millenium.  Under  existing  conditions  of  society  it  cannot 
be  admitted  that  departure  from  it  is  departure  from  justice. 
From  the  practical  viewpoint  the  chief  objections  to  this 
theory  of  ability  are :  it  is  Utopian ;  it  necessitates  most  arbi- 
trary powers  of  government;  it  is  too  objective,  {a)  It  is 
Utopian  since  there  is  no  way  of  determining  whether  the 
"  native  or  acquired  powers  of  production"  have  been  exer- 
cised to  their  utmost  capacity,  if  material  results  are  not  be 
taken  as  the  expression  of  the  potential  capacity  under  exist- 
ing social  and  economic  conditions  (as  no  doubt  in  many 
cases  they  cannot  be),  {b^  The  only  other  alternative  is  the 
determination  of  these  powers  by  the  government.     But  this 

''■Ibid.  p.  15.  To  the  same  effect  Mile.  Royer  writes:  "Nous  devpns  contribuer 
de  nos  personnes,  de  nos  facultfes  intellectuelles  et  de  nos  forces  physiques,  comme 
de  cette  extension  ext6rieure  de  notre  etre  que  nous  appelons  nos  biens,  nos  pro- 
pri6t6s."     Thiorit  de  V  Impdi,  p.  24. 


1 86  JUSTICE  IN  TAXATION  522 

could  not  be  except  by  most  arbitrary  methods  and  with 
most  indifferent  results.  Besides,  such  a  method  of  determi- 
tion  would  defeat  itself,  since  the  highest  productive  efficiency 
would  not  be  obtained  under  such  a  sj^stem  of  governmental 
slavery.  Moreover,  when  a  government  assumes  the  func- 
tion of  seeing  that  every  individual  develops  his  latent 
power,  and  that  no  one  be  allowed  to  shift  his  burden  upon 
others  by  "indolence,  shiftlessness  and  worthlessness,"  logi- 
cally and  justly  it  will  be  compelled  to  guarantee  the  condi- 
tions of  their  exercise,  just  as  the  logic  of  the  Elizabethan 
Poor  Laws  was  the  public  workhouse ;  for  these  powers  can- 
not be  exercised  where  the  means  are  wholly  wanting,  any 
more  than  the  "vagabond"  could  work  without  tools  and 
materials.  Still  more,  with  such  functions  it  would  "unmis- 
takably be  the  right,  and  it  might  even  become  the  duty  of 
the  state  to  see  that  such  powers  are,  in  fact,  in  all  respects 
and  at  all  times  put  to  the  best  possible  use.  But,  "  if  this 
is  not  socialism  of  the  rankest  sort  I  should  be  troubled  to 
define  socialism."  In  fact,  no  action  of  the  government 
could  be  more  paternal  or  more  arbitrary.'  (c)  Finally, 
this  view  of  the  ability  is  too  subjective,  too  indeterminate,  to 
be  of  practical  value.  In  determining  the  ability  of  the  tax- 
payer, the  government  is  bound  of  necessity  to  measure  his 
ability  by  objective,  not  by  imaginary  results.  In  short,  we 
must,  as  Spinoza  would  say,  deal  with  adequate  ideas  of  the 
understanding,  not  with  confused  ideas  of  the  imagination. 
Or  actual  income,  not  the  theoretical  possibilities  of  income, 
is  the  safest  guide  to  real  tax  ability. 

Yet  it  must  be  admitted  that  the  mere   objective   fact  of 
income  is  but  one  factor  in  the  determination  of  tax  ability. 

'  Neumann  opposes  to  the  basing  of  the  tax  on  the  ability  to  produce  the  follow- 
ing objection :  "  Die  Ermittelung  dariiber  wie  viele  Jemand  nach  seiner  k5rper- 
lichen  oder  geistlichen  Fahigkeiten  noch  erwerben  konnte,  diirften  schwer  zum 
Ziele  fuhren  und  entsetzlichster  Willkiir  Thiir  und  Thor  offnen."  Die  Progressive 
Einkommensteuer,  p.  172. 


523]  THE  ETHICAL  BASIS  OF  TAXATION  187 

Not  only  must  we  take  account  of  income,  but  also  of  the 
legitimate  demands  upon  that  income.  Or,  from  a  different 
point  of  view,  it  is  a  question  of  the  effect  upon  the  tax- 
payer of  the  deprivation  of  a  part  of  his  income  for  the  sup- 
port of  the  state — the  effect  of  contributions  for  his  collect- 
ive wants  upon  the  satisfaction  of  his  private  wants.  This 
suggests  a  negative  and  subjective  determination  of  ability : 
That  it  is  not  income  that  determines  it,  but  the  sacrifices 
endured  by  the  taxpayer  in  the  way  of  the  non-satisfaction 
of  private  wants,  of  the  loss  of  personal  enjoyments.  This 
view  has  suggested  the  sacrifice  theory  of  taxation,  or 
ability. 

Ill    Ability  and  Sacrifice 

I.  Mill. — The  first  writer  clearly  to  substitute  subjective 
sacrifice  for  objective  ability,  as  measured  by  revenue,  as  the 
basis  of  taxation,  was  John  Stuart  Mill'  With  Mill  the  basic 
idea  in  the  distribution  of  taxes  is  sacrifice.  The  aim  of 
justice  in  taxation  is  to  effect  an  "equality  of  sacrifice;"  not 
the  giving  up  of  equal  shares  of  the  means  of  enjoyment — 
revenue — but  the  giving  up  of  equal  enjoyments.  "  The  true 
principle  of  taxation  I  conceive  to  be,  not  that  it  shall  be 
equal  in  proportion  to  means,  but  that  it  shall,  as  far  as  pos- 
sible, demand  an  equal  sacrifice  from  all,"  /.  e.,  a  "  propor- 
tional sacrifice  of  enjoyments."^ 

This  is  Mill's  substitute  for  taxation  "  according  to 
ability."  In  a  sense  it  is  his  explanation  of  the  meaning  of 
ability,  though  to  Mill  the  idea  of  sacrifice  is  not  so  much  an 
interpretation  of  ability,  as  it  is  a  new  principle  of  taxation. 
For  with  him  the  fundamental  idea  of  justice  is  to  be  ex- 
plained, not  in  terms  of  ability,  but  in  terms  of  sacrifice. 
The    ideal    is,   "equality   of   sacrifice;"    that    each    person 

^  Political  Economy,  bk.  v,  ch.  2,  §  2. 

*  Report  of  the  Tax  Commission  of  18^2,  Mill's  testimony,  pp.  286,  312. 


1 88  JUSTICE  IN  TAXATION  [524 

"  shall  feel  neither  more  nor  less  inconvenience  from  his 
share  of  the  payment  than  every  other  person  experiences 
from  his."  ' 

This  view  of  the  basis  of  justice  in  taxation  is  the  natural 
result  of  the  reflections  of  a  philosophic  mind  on  the  obliga- 
tions of  the  citizen  to  the  state,  and  is  no  doubt  influenced 
by  a  utilitarian  ethics  whose  highest  principle  is  the  greatest 
possible  sum  of  pleasure  to  each  consistent  with  the  like 
pleasure  of  others.  It  emphasizes  the  idea  that  the  obliga- 
tion of  the  individual  to  the  state  calls  for  a  sacrifice,  a 
giving  up,  rather  than  an  active,  positive  effort,  and  in  this 
respect  is  directly  opposite  to  the  theory  of  Walker.  From 
the  viewpoint  of  Mill,  "  equality  of  sacrifice  "  is  clearly  the 
best  expression  we  have  of  the  theoretical  ideal  of  the  obli- 
gation resting  upon  the  taxpayer;  but,  to  our  mind,  this 
negative  conception  of  our  obligations  does  not  bring  out  so 
clearly  and  fully  our  relations  to  the  state  as  does  the  posi- 
tive conception  that  calls  for  efTort,  activity,  the  fullest  exer- 
cise of  our  faculties — taxation  according  to  ability.  We  are 
inclined  to  think,  too,  that,  theoretically  at  least,  the  two 
conceptions  are  quite  distinct,  representing  distinct  bases  of 
taxation. 

Practically  and  objectively,  however,  there  is  no  difference. 
For  we  find  that  Mill,  in  his  testimony  before  the  Tax  Com- 
mission, is  compelled  to  appeal  to  an  objective  standard — 
income  or  property — for  the  determination  of  the  equal 
sacrifices.  Ideally,  he  thinks,  that  equality  of  sacrifice  is  a 
proportion  to  what  one  is  able  to  spend — his  income ;  but 
for  practical  reasons — the  low  state  of  morality  —  there 
should  be  an  "  equal  sacrifice  according  to  means,"  ^  which 
is  just  what  Mill  has  said  is  not  the  true  principle  of  taxa- 
tion. In  short,  viewed  with  respect  to  their  objective  ex- 
pression, ability  and  sacrifice  are  but  two  aspects  of  the 
1  Political  Economy,  v.  2,  §  2.  '  See  Testimony,  p.  301  et  seq. 


52  5  THE  ETHICAL  BASIS  OF  TAXATION  189 

same  idea,  the  tertiiun  qtcid  being  income,  by  which  Mill 
means  a  "clear"  income,  including  in  the  deduction  not 
only  the  necessaries  but  also  the  lesser  comforts,  the  taxable 
income  being  that  part  of  income  that  is  spent  upon  luxuries. 
So  that  equality  of  sacrifice  comes  to  this :  That  each 
should  "pay  a  fixed  proportion,  not  of  his  whole  means, 
but  of  his  superfluities,"  '  just  what  taxation  according  to 
ability  means  to  the  advocate  of  the  clear  income  theory. 

2.  Wagner  and  Neumaim. — Since  the  time  of  Mill 
"equality  of  sacrifice"  has  come  to  be  very  generally 
accepted  as  expressive  of  the  basis  of  just  principles  of  taxa- 
tion, but  it  is  not  considered  as  a  distinct  principle,  but  only 
as  the  subjective  form  of  ability.  Yet,  while  some,  like 
Mill,  find  in  the  conception  of  sacrifice  the  true  basis  of  jus- 
tice, others  find  that  this  basis  is  best  expressed  in  the  con- 
ception of  ability.  Wagner,  for  example,  accepts  the  sacri- 
fice theory  of  Mill  but  thinks  that  the  true  norm  of  taxation 
is  the  economic  ability  to  pay  (wirthschaftliche  Leistungs- 
fahigkeit),  but  that  the  sacrifice  theory  shows  more  defi- 
nitely how  equality  in  taxation  —  taxation  according  to 
ability — is  to  be  accomplished,^  or  the  meaning  of  ability. 
So  likewise  Neumann :  "  It  is  through  a  consideration  of  the 
sacrifice  imposed  that  the  measure  of  ability  acquires  defi- 
nite form  and  becomes  useful  for  a  system  of  taxation."  3 

That  is,  both  Wagner  and  Neumann  find  in  the  idea  of 
"  taxation  according  to  ability  "  the  real  norm  or  demand  of 
justice,  but  hold  that  the  attainment  of  this  norm  is  best 
accomplished  in  terms  of  sacrifice.  This,  I  think,  is  the 
more  usual  form  in  which   the  ability  and  sacrifice  theories 

'  Political  Economy ,  v.  2,  §  3. 

* «'  Hier  dient  diese  Theorie  [OpfertheorieJ  dazu,  genauer  den  Weg  zu  weisen 
wie  die  Gleichmassigkeit  der  Besteuerung  durchzufuhren  ist."     Wagner,  Finamw. 

".  P-  349- 

•Neumann,  Progressive  Einkommensteuer,  p.  62. 


I90  JUSTICE  IN  TAXATION  [526 

are  held.  And  it  has  the  merit  of  at  once  emphasizing  the 
fact  that  in  the  positive  idea  of  ability — effort — is  the  real 
basis  of  the  tax  obligation ;  and  at  the  same  time,  also,  that 
every  tax  necessarily  involves  the  sacrifice  of  personal  satis- 
factions, the  degree  of  the  sacrifice  marking  the  degree  of 
ability,  while  the  relative  sacrifice  of  each  to  the  sacrifice  of 
others,  marks  the  relative  tax  ability.  Hence,  accordingly, 
equal  taxation  according  to  ability  is  theoretically  attained 
by  effecting  an  equality  of  sacrifice. 

In  determining  the  equality  of  sacrifice,  however,  Wagner, 
Neumann,  and  others  are  compelled,  like  Mill,  to  revert  to 
objective  standards.  Indeed,  with  most  the  practical  stand- 
ard is  one  rather  of  objective  than  of  subjective  sacrifice — 
the  effect  upon  objective  economic  conditions,  rather  than 
upon  subjective  feelings.  But  Wagner  and  Neumann  go 
even  farther  than  does  Mill  in  making  allowances  for  the 
external  circumstances  that  affect  the  sacrifice  and  thereby 
determine  the  ability;  for  they  consider  not  only  the  source, 
size  and  character  of  the  income,  but  also  the  circumstances 
and  condition  —  health,  indebtedness,  etc. — of  those  de- 
pendent upon  it.  By  considerations  such  as  these,  it  is 
assumed,  an  equality  of  sacrifice  may  be  attained,  or,  that 
"  taxes  will  occasion  equal  efforts  and  sacrifices  over  against 
other  needs." ' 

3.  Meyer. — Nominally  opposed  to  the  theory  of  Wagner 
and  Neumann,  and  in  form  more  nearly  akin  to  the  view  of 
Mill,  is  the  theory  of  Meyer,  who  insists  that  equality  of  sub- 
jective sacrifice  is  the  true  tax  basis,  but  admits  that  this 
equality  can  be  effected  only  through  a  consideration  of  the 
"ability  to  pay."'  The  difference,  however,  is  more  in 
seeming  than  in  reality,  except  in  the  emphasis  given  to  the 
central  idea  that  lies  at  the  basis  of  a  just  distribution  of 
taxes,  the   emphasis   being  given  in  the  one  case  to  ability, 

*  Neumann,  ibid.,  p.  6j.  ^  Cf.  Meyer,  op.  (it.,  §§  50  and  53. 


527]  THE  ETHICAL  BASIS  OF  TAXATION  191 

and  in  the  other  to  the  idea  of  sacrifice.  But  there  is  no 
difference  with  respect  to  the  objective  and  practical  stand- 
ard of  abihty,  or  sacrifice. 

The  theory  of  Meyer,  however,  is  not  a  mere  restatement 
nor  a  mere  expansion  of  the  theory  of  Mill.  It  is  peculiar 
to  the  theory  of  Meyer,  as  distinguished  from  the  preceding 
views  of  sacrifice,  that  he  gives  greater  definiteness  to  the 
meaning  of  the  subjective  sacrifice  occasioned  by  the  tax,  by 
connecting  it  with  the  intensities  of  our  "  marginal  wants," 
the  intensity  of  the  marginal  wants  occasioned  by  the  tax, 
measuring  the  degree  of  the  subjective  sacrifice.  But  Meyer 
understands  by  the  marginal  want  affected  by  the  tax,  not 
the  last  want  unsatisfied  because  of  the  tax,  but  the  last 
want  attaining  satisfaction.'  In  this  view  of  the  marginal 
want  effected  by  the  tax  Meyer  seems  to  think  that  he  has 
discovered  some  new  principle,  but  we  fail  to  see  what  pos- 
sible difference  it  can  make,  in  measuring  the  subjective 
effect  of  a  tax,  whether  we  consider  the  effect  upon  the 
intensity  of  the  last  need  attaining  satisfaction,  or  upon  the 
intensity  of  the  first  want  given  up — unsatisfied — because  of 
the  tax.  If  equality  of  sacrifice  is  the  aim,  what  possible 
difference  can  it  make  whether  the  equality  is  established 
between  the  last  want  attaining  satisfaction,  or  the  want 
unsatisfied  because  of  the  tax — the  first  want  that  would 
be  satisfied  if  the  tax  were  removed?  If  there  is  an 
"  equality"  in  the  first  case,  there  is,  of  necessity,  equality 
in  the  second  case.  The  distinction  is  without  a  real 
difference. 

That  Meyer  has  given  us  a  more  definite  conception  of 
the  nature  of  the  sacrifice  occasioned  by  the  tax,  and  a  more 

'  "  Das  Opfer  nicht  in  der  Intensitat  der  in  Folge  der  Steuer  unbefriedigt  blciben- 
den  Bediirfnisse,  sondern  in  dem  Masse  erblicken  in  welchem  die  durchscbnitt- 
liche  Intensitat  der  letzen  zur  Befriedigung  gelangenden  Bediirfnisie  in  Folge  der 
Steuer  erhSht  wird."     Meyer,  op.  cii.,  p.  332. 


192  JUSTICE  IN  TAXATION  [528 

definite  standard  for  measuring  the  subjective  equality,  than 
did  Mill,  must  be  admitted,  though  in  result  there  is  no  real 
difference.  The  equality  in  the  intensity  of  the  last  need 
attaining  satisfaction  is  precisely  the  equality  of  Mill — that 
one  person  should  feel  the  tax  no  more  than  every  other  per- 
son feels  it.  In  neither  case  is  the  equality  thought  of  as  an 
absolute  equality,  but  only  that  the  "  feeling  "  or  the  "  in- 
tensity "  is  for  each  person,  under  the  circumstances  in 
which  he  is  placed,  exactly  what  it  is  for  every  person  other 
under  the  circumstances  in  which  he  is  placed.  That  is,  it 
is  a  purely  relative  equality. 

Has  Meyer,  then,  added  anything  to  the  solution  of  the 
problem  of  justice  in  taxation  by  his  reduction  of  "  equality  " 
to  a  comparison  of  "  marginal  wants,"  or  rather  of  the  in- 
tensities of  m.arginal  wants  ?  True,  as  a  purely  theoretical 
conception,  it  would  be  difficult  to  find  a  more  exact,  or 
more  precise,  conception  of  the  idea  of  "  equality  of  sacri- 
fice "  than  is  to  be  found  in  the  conception  of  a  relative 
equality  of  intensities — i.  e.,  of  sacrifices — of  marginal  wants 
(of  either  margin)  as  occasioned  by  the  tax.  And  true, 
also,  that  the  conception  of  "  ability  "  finds,  perhaps,  its  most 
perfect  subjective  expression  in  the  idea  of  a  relation  between 
the  intensity  of  collective  wants  and  the  intensity  of  marginal 
per.f'Onal  wants ;  while  relative  ability  finds  its  most  perfect 
subjective  expression  in  the  idea  that  tax  contributions 
should  produce  the  same  relative  effects  upon  the  satisfac- 
tion of  the  marginal,  personal  wants  of  every  taxpayer.  We 
cannot,  therefore,  agree  with  Leroy-Beaulieu  that  the  sacri- 
fice theory  is  a  piece  of  pure  sentimentality.' 

On  the  other  hand,  it  must  be  admitted  that  this  subjective 
comparison  of  marginal  wants  is  of  little  or  no  practical  im- 
portance,-since  in  either  case,  as  we  have  seen,  they  can  be 
interpreted  only  by  reference  to  objective  facts — to  economic 

^ "  Cette  theorie  est  simplement  sentimentale."     Op.  cit.,  i,  p.  140. 


529]  THE  ETHICAL  BASIS  OF  TAXATION  193 

conditions  and  personal  circumstances.  But  if,  however,  we 
retain  the  idea  of  sacrifice  along  with  that  of  ability,  it  can 
be  of  little  consequence  whether  we  consider  "  equality  of 
sacrifice"  as  explaining  "  ability,"  or  ability  as  explaining 
equality  of  sacrifice;  although,  as  we  have  pointed  out,  the 
conception  of  "  ability"  best  expresses  the  ideal  of  justice. 
Yet  in  either  case  or  whether,  with  Professor  Ely  and  others, 
we  regard  "  equahty  of  sacrifice"  and  "ability  to  pay"  as 
but  different  expressions  of  the  same  fundamental  idea,'  we 
are  involved  in  a  vicious  circle.  The  solution  of  this  circle, 
according  to  Sax,  is  to  be  found  in  his  great  discovery — the 
Theory  of  Equivalence. 

4.  Sax. — From  the  fact  that  Sax  disclaims  ethics  in 
finance,  and  believes  that  the  whole  problem  of  taxation  is  a 
purely  economic  problem,  it  might  seem,  at  first  thought, 
that  a  discussion  of  his  theory  is  out  of  place  in  a  discussion 
of  the  ethical  basis  of  taxation.  But  in  spite  of  any  dis- 
claimer, the  fact  is  that  Sax,  equally  with  every  other  writer 
on  the  theory  of  taxation,  has  in  mind  as  an  ultimate  end 
an  ethical  basis  and  ethical  principles ;  only  with  Sax,  as  we 
have  previously  seen,  the  fulfillment  of  the  ethical  end  is  to 
be  attained  by  the  free  play  of  economic  forces.  It  is 
proper,  therefore,  to  examine  his  theory  of  justice  and  to 
inquire  whether  he  has  made  any  real  contribution,  in  the 
solution  of  the  problem,  to  the  thought  of  his  predecessors.' 

We  have  already  sufficiently  discussed  the  general  features 
of  the  theory  of  Sax,  and  have  found  that  his  theory,  like 
that  of  Meyer,  is  founded  upon  the  intensity  of  marginal 
wants  as  resulting  from  the  tax.  It  is,  however,  to  the  merit 
of  Sax  that  he  emphasizes  rather  the  "  satisfactions  "  than 
the    "  sacrifices,"  ^    thus    calling    attention    to    the    positive, 

>  Cf.  Ely,  Taxation  in  American  Cities,  pp.  80  and  237. 

'  Sax,  "  Die  Progressivsteuer,"  in  Zeitsckrift  fiir  Volkswirthschaft,  Socialpolitik 
und  Verwaltung,  Erster  Band,  I  Heft,  p.  87. 


194  JUSTICE  IN  TAXATION  [530 

instead  of  the  negative,  relations  of  the  individual  to  the 
state.  In  the  scale  of  wants,  too,  Sax  brings  out  more 
clearly  the  inclusion  of  collective  wants,  the  taxpayer,  theo- 
retically at  least,  making  his  comparisons  between  his  mar- 
ginal collective  and  marginal  private  wants ;  whereas  with 
Meyer  the  comparison  is  virtually  between  the  marginal 
private  wants  before  and  after  the  tax ;  or,  when  relatively 
considered,  it  is  between  the  marginal  want  (as  affected  by  the 
tax)  of  different  taxpayers — a  comparison  impossible  to  make 
except  through  objective  standards.  In  reality,  however, 
with  Sax,  no  less  than  with  Meyer,  the  comparison  is  be- 
tween the  intensities  of  marginal  private  wants  as  they  are 
afifected  by  the  tax,  and  he  gives  to  these  wants,  also,  the 
same  objective  reference. 

What,  then,  according  to  Sax,  is  the  standard  of  justice? 
In  the  first  place,  Sax  makes  no  effort  to  refute  the  ability 
and  sacrifice  theories,  further  than  to  maintain  that  in  them- 
selves they  explain  nothing;  just  as,  to  the  utilitarian  econ- 
omist, the  law  of  "  demand  and  supply"  is  an  explanation  of 
economic  facts  that  does  not  explain — the  ultimate,  efficient 
cause  being  wanting,  and  there  being  no  third  term  of  com- 
parison, other  than  that  of  "  general  feelings."  What  Sax 
seeks  to  do,  then,  is  not  to  overthrow  "  ability  "  or  "  sacri- 
fice "  as  a  basis  of  taxation,  but  to  supply  the  tertium  com- 
paratio7iis  that  gives  them  meaning,  makes  them  intelligible. 
This  "  tertium,''  as  we  saw,  Sax  finds  in  "  sensation."  For 
the  determination  of  ability  or  sacrifice  lies  in  a  comparison 
of  the  intensities  of  marginal  needs,  before  and  after  the  im- 
position of  a  tax;  and  "all  needs  have,  without  distinction 
of  ends  to  which  they  are  referred,  a  tertium  comparationis 
in  sensation."' 

Hence,  therefore,  the  problem  of  tax  distribution — taxa- 
tion   according    to    ability,    equality    of   sacrifice — revolves 

'  Grundlegung,  p.  194. 


53  l]  THE  ETHICAL  BASIS  OF  TAXATION  195 

about  sensation,  and  when  "  reduced  to  a  nutshell,"  we  find 
it  to  be,  "  that  our  tax  payments  should  be  equivalent," ' 
i.  e.,  should  effect  equivalent  sensations.  And  when  this  is 
accomplished  distributive  justice  will  be  attained,  because  it 
will  be  the  fulfilment  of  economic  laws.^"  Moreover,  it  is  in 
the  "equivalence"  of  sensations  resulting  from  the  imposi- 
tion of  a  tax  that  ability  and  equality  of  sacrifice  for  the  first 
time  find  a  complete,  ultimate  explanation. 

But  in  what  respect  does  this  "equivalence  of  sensations" 
differ  from  "equality  of  sacrifice"  as  understood  by  Meyer 
— the  equal  sacrifice  of  enjoyments  as  measured  by  the 
intensity  of  feeling  (of  sensation)  of  the  marginal  wants 
attaining  satisfaction  after  the  payment  of  the  tax?  The 
great  discovery  of  the  tertium  coniparationis  is  not,  therefore, 
the  discovery  of  Sax.  In  short,  with  Sax,  equally  with 
Meyer,  the  standard  of  justice  in  taxation  is  equahty  of 
sacrifice — the  production  of  an  equal  (=  equivalent)  in- 
crease in  the  intensity  of"  feeling  of  the  marginal  want  satis- 
fied, or  of  the  marginal  want  unsatisfied,  because  of  the  tax. 
Thus,  that  "  equivalence  of  sensations  " — i,  e.,  of  sacrifice — 
is  only  "equality  of  sacrifice"  in  a  new  dress  is  clear;  also, 
from  the  fuller  statement  of  the  law  of  "equivalence:  "  that 
"  every  individual  shall  value  the  goods  taken  from  him  just 
as  highly  as  every  other  individual  values  those  taken  from 
him,  their  respective  stations  in  life  being  taken  into  con-' 
sideration,"3  a  formula  given  by  Mill  forty  years  previously 
as  expressing  the  meaning  of  "  equality  of  sacrifice." 

Yet  Sax.  himself,  does  not  admit  that  his  theory  of  sacri- 
fice is  at  all  in  agreement  with  that  of  Meyer.  He  points 
out  that  Meyer  regards  the  wants  within  each  group  of 
wants  as  having  the  same  intensity,  and  insists,  no  doubt 
more  correctly,  that  they  have  varying  intensities.  Accord- 
ingly, he  accuses  Meyer  of  making  equality  of  sacrifice  mean 

^  Die  Progressivsieuer,  p.  90.  *Ibid.,  p.  89.  '  Grundlegung,  p.  514. 


196  JUSTICE  IN  TAXATION  [532 

a  loss  of  equal  utilities ;  whereas,  says  Sax,  "  equal  sacrifice 
is  not  the  dispensing  with  equal  enjoyments,  but  with  equal 
parts  of  respective  enjoyments  [within  the  dififerent  groups]. 
That  is,  by  equal  sacrifice  is  not  meant  absolutely  equal,  but 
relatively  equal  sacrifices;"  or,  "that  the  enjoyments  that 
each  person  loses  by  means  of  the  tax  shall  stand  in  the 
same  relation  to  the  total  enjoyment  made  possible  by 
means  of  his  income."'  But  the  difference  is  purely  verbal 
so  far  as  it  has  reference  to  the  character  of  equality.  Abso- 
lute equality  is,  no  doubt,  just  as  "  unthinkable  "  to  Meyer 
as  it  is  to  Sax.  Nevertheless,  we  may  agree  with  Sax  that 
"  equivalence  "  is  a  better  term  than  "  equality,"  as  being 
less  ambiguous;  and  that  "equivalence  of  sensation"  ex- 
presses with  greater  definiteness  than  "equality  of  sacrifice" 
the  ideal  of  distributive  justice. 

It  is  the  further  boast  of  Sax  that  equivalence  of  sensation 
for  the  first  time  also  explains  the  meaning  of  justice  in 
taxation.  But  it  is  rather  a  definition  than  an  explanation. 
Still,  the  claim  is  not  wholly  without  its  reason.  Not  only 
because  ability  and  sacrifice,  subjectively  considered,  are 
ultimately  resolvable  into  sensation — ability  having  reference 
more  to  the  sensation  of  satisfaction,  and  sacrifice  to  the 
sensation  of  non-satisfaction ;  but  also,  from  the  viewpoint 
of  Hedonistic  ethics  and  utilitarian  economics,  between 
which  sensation — the  ultimate  fact  of  consciousness — con- 
stitutes a  uniting  bond  ;  a  tertmm  comparationis,  pleasurable 
sensation — i.e.,  satisfaction — being  the  ultimate  end  of  both. 
Still  more,  because  of  this  reference  of  the  economic  and 
ethical  to  sensation,  and  because  of  the  competition  resulting 
from  the  fact  that  every  individual  is  actuated  by  the  same 
motives,  the  same  sensations,  it  is  assumed  that  each  indi- 
vidual determines  for  himself  the  reahzation  of  the  ethical 

*  Die  Progressivsteuer,  p.  55. 


533]  THE  ETHICAL  BASIS  OF  TAXATION  197 

ideal — equivalent  sensations  =  equality  of  sacrifice  =  taxa- 
tion according  to  ability. 

But  all  this  is  ideal.  The  individual  does  not  impose 
taxes  upon  himself,  but  through  his  representatives,  and 
these  representatives  can  interpret  the  sensations  of  their 
constituents  only  through  objective  signs,  through  the  ob- 
jective conditions  that  produce  the  sensations.  It  is  these 
objective  signs,  which  are  not  a  whit  dififerent  with  Sax  from 
what  they  are  with  Wagner  or  Meyer,  that  constitute  the 
objective,  practical  tertium  comparationis  between  ability  and 
sacrifice  and  explain  their  meaning,  that  gives  the  practical 
solution  to  the  riddle  of  the  circle.  However  indefinite  this 
solution  may  be,  it  is  the  only  practical  one.  While,  then, 
Sax  may  have  added  to  the  definiteness  of  the  theory  of 
subjective  sacrifice,  he  has  added  nothing  to  the  practical 
solution  of  the  problem  of  justice. 

5.  The  Dutch  Economists ^ — Accepting  "  equality  of  sac- 
rifice "  as  the  ideal  of  justice  in  taxation,  the  mathemati- 
cal economists  of  Holland  have  gone  farther  than  any  other 
economists  in  their  attempt  to  give  to  the  idea — equality  of 
sacrifice — precision  of  meaning.  They  apparently  start  from 
the  position  of  Meyer,  that  within  every  group  of  needs 
there  is  the  same  intensity  throughout,  together  with  the 
fact  that  the  order  of  the  satisfaction  of  needs  varies  in- 
versely with  the  means  of  their  satisfaction — with  income.' 
That  is,  only  those  with  the  larger  incomes  can  satisfy  the 
least  intensive  group  of  needs ;  so  that  that  group  of  needs 
affected  by  the  tax  is  necessarily  the  most  intensive  of  un- 
satisfied needs,  or  the  least  intensive  of  satisfied  needs. 

Assuming,  then,  decreasing   groups,  or   grades,  of  needs 

'  Pierson,  Cohen-Steuart  and  Mees.  I  regret  that  my  knowledge  of  this  school 
of  economists  is  only  second  hand,  my  acquaintance  with  them  being  limited  to 
the  exposition  of  Sax  in  Die  Progressivsieuer,  already  referred  to,  and  to  Pro- 
fessor Seligman's  account  in  his  Progressive   Taxation,  pp.  137-144. 


igg  JUSTICE  IN  TAXATION  [534 

with  each  decreasing  grade  satisfied  by  correspondingly 
increasing  incomes,  we  have  the  fact  that  the  marginal 
utility  of  incomes  decreases  as  the  incomes  increase,  since 
less  intensive  needs  are  satisfied  by  them.  Again,  with  in- 
comes equally  increasing  the  difference  between  the  intensi- 
ties of  the  unsatisfied  needs  (or  the  last  satisfied),  on 
account  of  the  tax,  grows  constantly  less  as  the  incomes 
increase  ;  or  the  difference  between  the  intensities  of  unsatis- 
fied needs  is  less  with  the  larger  incomes  than  it  is  with  the 
smaller  incomes.  Hence,  every  increment  of  tax,  corre- 
sponding to  an  increment  of  income,  has  a  less  marginal 
utility  than  the  next  preceding  increment. 

With  these  facts  before  us  the  problem  of  determining 
equality  of  sacrifice  is  apparently  very  simple.  For  all  that 
is  now  necessary,  is  to  assume  a  fixed  gradation  in  the  de- 
crease of  the  marginal  utility  of  every  increment  of  income, 
and  a  corresponding  decrease  in  the  marginal  utility  of 
every  increment  of  tax.  Then  the  sum  of  the  marginal 
utilities  of  the  different  increments  of  income  and  of  the  tax 
will  represent  respectively  the  total  utility  of  income  and  of 
the  tax.  If,  now,  we  divide  the  total  utility  of  the  tax  by 
the  total  utility  of  the  corresponding  income  we  shall  ascer- 
tain the  per  cent,  that  the  total  tax  is  of  the  total  income 
upon  which  it  is  assessed.  In  the  same  way  percentages 
may  be  found  for  every  grade  of  income.  In  every  case 
this  percentage  will  be  the  percentage  that  any  given  tax 
bears  to  the  total  utility  of  its  corresponding  income.  The 
series  of  percentages  thus  obtained  would  measure  the  sacri- 
fice that  a  proportional  tax  would  occasion  for  every  grade 

of  income. 

Now  it  must  be  very  clear,  as  indeed  Cohen-Steuart  him- 
self points  out,'  that  the  gradation  in  the  series  of  percent- 
ages must  depend  entirely  upon  the   numbers  assumed  to 
^  See  Sax,  Die  Pro^essivsteuer,  p.  76. 


535]  T^HE  ETHICAL  BASIS  OF  TAXATION  199 

represent  the  marginal  utilities  of  the  increments  of  income 
and  of  the  tax.  Only,  however,  when  the  tax  is  exactly  the 
same  per  cent,  of  the  total  utilities  of  the  different  grades  of 
income  can  equality  of  sacrifice  be  attained.  To  produce 
this  equality,  therefore,  all  that  is  necessary  is,  to  find  such 
a  tax  rate  as  will  yield  a  tax  whose  total  utility  divided  by 
the  total  utility  of  the  income  paying  the  tax  will  be  the 
same  quota  for  every  income.  In  brief,  the  tax  should  be 
such  that  the  total  utility  of  the  tax  of  every  individual  will 
be  the  same  per  cent,  of  the  total  utility  of  his  income  as  the 
total  utility  of  the  tax  of  every  other  individual  is  of  the 
total  utility  of  his  income.  Or,  "  Tax  quota  and  income  re- 
duced to  units  of  utility  must  show  the  same  relation  to 
every  tax-bearer,  since  herein  consists  the  equality  of 
sacrifice."  ' 

The  problem  of  effecting  an  equality  of  sacrifice  is,  then, 
the  problem  of  finding  such  a  tax  rate  for  every  income  that 
the  tax  will  take  the  same  quota  of  the  total  utility  of  every 
income.  Clearly  everything  depends  upon  the  series  of 
numbers  taken  to  represent  the  marginal  utilities  of  the  in- 
crements of  tax  and  of  income.  But  whatever  series  we 
may  choose,  any  other  series,  as  Cohen-Steuart  admits, 
would  be  equally  legitimate.  Hence,  accordingly,  it  is  pos- 
sible, by  a  clever  manipulation  of  an  arbitrary  series  of 
numbers  representing  utilities,  to  prove  that  almost  any 
system  of  tax  rates  is  necessary  to  produce  an  equality  of 
sacrifice — as  constant,  increasing  or  decreasing  rates. 

But  this  fact  does  not  shake  the  faith  of  Cohen-Steuart  in 
the  possibility  of  a  mathematical  determination  of  equality 
of  sacrifice.  He  therefore  thinks  to  avoid  the  dilemma  by 
assuming  two,  instead  of  one,  series  of  decreasing  marginal 
utilities  with  increasing  incomes ;  also  that  the  truth  lies 
somewhere  between  these  two  series,  which  are  supposed  to 
^  Sax,  Die  Progressivsteuer,  p.  57. 


200  JUSTICE  IN  TAXATION  [536 

represent  the  two  extremes  of  possible  decreasing  utilities. 
In  the  series  that  decreases  more  slowly  the  rate  of  increase 
is  assumed  to  be  inversely  proportional  to  the  cube  root  of 
the  fourth  power  of  the  amount  of  the  income ;  while  in  the 
other  series — that  having  the  more  rapid  decrease — the  de- 
crease is  assumed  to  be  inversely  proportional  to  the  second 
power  of  the  amount  of  the  income.  From  these  two  rules 
is  deduced  the  following  formula  for  equalizing  the  sacrifice 
of  total  utilities  in  the  imposition  of  a  tax:  "  An  arithmetical 
increase  of  the  tax  rate  with  a  geometrical  increase  of 
income."  ' 

Here,  indeed,  we  have  the  problem  reduced  to  mathemat- 
ical exactness.  But  unfortunately  Cohen-Steuart  proceeds 
upon  assumptions  equally  arbitrary  and  equally  imaginary 
with  those  of  the  other  Belgian  economists,  whose  theories 
he  rejects.  All  aHke,  as  Sax  says,  attempt  to  prove  a  truth 
by  groundless  assumptions.  But,  in  fact,  assumption  lies  at 
the  basis  of  every  theory  of  sacrifice,  and  we  may,  therefore, 
conclude  with  Sax  that  the  sacrifice  theory  in  itself  is  insol- 
uble.'' As  to  his  own  theory.  Sax,  of  course,  believes  that 
he  has  avoided  all  assumption,  and  it  must  be  admitted  that 
his  theory  contains  no  such  wild  assumptions  as  are  found 
in  the  Belgian  economists.  Indeed,  his  whole  theory  is 
based  upon  one  of  the  most  ultimate  facts  of  conscious  life- 
sensation.  It  is  in  the  development  of  his  thesis  that  what 
appears  to  us  unwarranted  assumptions  make  their  appear- 
ance, particularly  with  reference  to  the  assumed  power  of 
the  individual  over  the  satisfaction  of  his  collective  wants. 
At  any  rate,  after  all  the  elaborate  development  of  his  sub- 
jective theory.  Sax  is  compelled  to  conclude  that  "justice 
merely  forbids  that  a  tax  be  imposed  upon  any  one  that  is 
in  contradiction  with  his  economic  relations;"  3  in  other 
words,  with  his  "  ability."  The  prevention  of  this  "  contra- 
'  Quoted  by  Sax,  Hid.,  p.  81.  *  Hid.,  p.  83.  *  Hid.,  p.  63. 


537]  THE  ETHICAL  BASIS  OF  TAXATION  201 

diction  "  must  be  left  to  the  officials  of  the  government — to 
their  "  sensations  "  quite  as  much  as  to  the  "  sensation  "  of 
the  taxpayer.  This  conclusion  is  that  of  every  sacrifice 
theory. 

6.  Edgeworth.  Another  interpretation  of  the  sacrifice 
theory  is  given  by  Professor  Edgeworth  in  his  able  article  on 
"  The  Pure  Theory  of  Taxation."  '  Sacrifice  is  accepted  as 
containing  the  true  principle  of  taxation ;  but  it  is  main- 
tained that  neither  "  equal  "  nor  "  proportional  "  sacrifice — 
as  held  respectively  by  Sidgwick  and  Cohen-Steuart — cor- 
rectly expresses  the  fundamental  idea  which  the  principle 
involves.  The  true  notion  of  equity  in  taxation  finds  its 
more  correct  expression  in  the  term  like  sacrifice,  which 
constitutes  the  common  genus  of  which  "equal"  and  "  pro- 
portional" sacrifice  are  but  species.^  But  "  like  sacrifice," 
otherwise  expressed,  is  an  equi-niarginal  sacrifice,  which  we 
take  to  mean  an  absolute  equality  of  the  marginal  utilities 
sacrificed — the  marginal  disutilities  occasioned — on  account 
of  the  tax.  That  these  marginal  sacrifices,  or  disutilities, 
should  be  at  a  minimum  is  an  imperative  demand  of  utili- 
tarian ethics.  Hence,  an  "  equi-marginal  sacrifice  "  finds  its 
most  perfect  expression  in  a  minimum  sacrifice,  to  which 
principle  the  true  basis  of  taxation  is  ultimately  reduced.  It 
is  not  claimed,  however,  that  there  is  any  real  opposition 
between  this  view  and  that  of  "equal"  or  "  proportional" 
sacrifice.  On  the  contrary,  it  is  intimated  that  both  equal 
and  proportional  sacrifice  are  notions  that  show  a  confusion 
in  the  minds  of  their  advocates  for  equi-marginal  sacrifice, 
itself  leading  to  minimum  sacrifice.^ 

Like  other  utilitarian  economists  Professor  Edgeworth 
assumes  as  the  basis  of  his  argument  "  the  greatest  happi- 

'  Economic  Journal,  vol.  vii.     This  article  did  not  come  to  my  notice  until  this 
and  the  following  chapters  were  written. 

'  Ibid.,  p.  557.  *Ibid.,  pp.  564-5. 


202  JUSTICE  IN  TAXATION  [538 

ness  principle,"  though  in  a  "  sHghtly  modified  "  form.  That 
is,  in  its  application  to  social  phenomena,  which  are  not 
^determined  by  competitive  action,  the  principle  must  be 
interpreted  to  mean :  not  the  greatest  sum  of  happiness  for 
each  of  the  two  or  more  parties  concerned,  taken  individ- 
ually; but  "that  arrangement  which  conduces  to  the  great- 
est sum-total  welfare  of  both  parties,  subject  to  the  condition 
that  neither  should  lose  by  the  contract."  In  other  words, 
in  its  application  to  pohtical  problems  the  greatest  happiness 
principle  must  be  understood  to  mean  the  greatest  sum- 
total  of  utility  for  the  community — i.  e.,  of  collective  utility 
— not  the  greatest  sum  for  each  individual ;  though  "  in  the 
long  run  of  various  cases,  the  maximum  sum-total  of  utility 
corresponds  to  the  maximum  individual  utility."  For,  "  of 
all  principles  of  distribution  which  would  afford  him  now  a 
greater,  now  a  smaller  proportional  sum-total  utility  obtain- 
able on  each  occasion,  the  principle  that  the  collective 
utility  should  be  on  each  occasion  a  maximum  is  most  likely 
to  afford  the  greatest  utility  in  the  long  run  to  him  individ- 
ually." ' 

Applied  to  taxation  the  principle  means  that  taxes  should 
be  so  distributed  that  the  maximum  total  net  utility  will  be 
realized,  or  the  minimum  of  total  disutility  For  "  the  con- 
dition that  the  total  net  utility  procured  by  taxation  should 
be  a  maximum  reduces  to  the  condition  that  the  total  dis- 
utility should  be  a  minimum."  Hence  "  it  follows  in  general 
that  the  marginal  disutility  incurred  by  each  taxpayer  should 
be  the  same."  But  to  produce  such  an  equality  would  be  to 
level  all  fortunes,  which  would  produce  the  result:  that 
"  the  richer  should  be  taxed  for  the  benefit  of  the  poorer  up 
to  the  point  at  which  complete  equality  of  fortune  is  attained." 
This  is,  indeed,  the  acme  of  socialism,  "  but  it  is  immediately 
clouded  over  by  doubts  and  reservations."  * 

^Economic  Journal,  vol.  vii,  p.  552.  *  Ibid.,  p.  553. 


539]  THE  ETHICAL  BASIS  OF  TAXATION  203 

These  "  doubts  and  reservations  "  that  stand  in  opposi- 
tion and  modify  the  logical  execution  of  the  minimum  prin- 
ciple, are  such  as  have  been  noted  by  Mill,  Sidgwick  and 
others  :  That  there  would  result  a  lessening  of  the  amount  to 
be  distributed,  since  such  a  system  would  inculcate  a  ten- 
dency to  leisure  rather  than  to  industry;  that  it  would  result 
in  an  increase  of  population,  which  would  ultimately  reduce 
the  amount  of  wages,  both  by  the  increased  competition  of 
numbers  and  by  a  decrease  of  efficiency.  But  further  (ex- 
cept upon  the  false  assumption  of  an  equality  of  natures), 
there  are  different  capacities  for  happiness,  which,  on  the 
principle  of  minimum  disutility,  involves  an  unequal  distrib- 
ution of  the  tax.  Still  further,  a  progressive  rate,  which  the 
unmodified  principle  implies,  would  produce  a  check  to  sav- 
ing, and  so  "  would  check  the  augmentation  of  the  com- 
munity's wealth,"  though  this  loss  is  "  to  be  set  off  against  a 
probable  increase  of  saving  among  the  poorer  classes,"  So 
likewise  the  principle  of  minimum  sacrifice  justifies  dififer- 
ential  rates  on  account  of  the  size  and  permanence  of  incomes, 
the  number  of  children,  age,  etc.  But  with  such  reservations 
as  the  above  in  the  practical  application  of  the  principle,  it 
still  remains  true  that  minimum  sacrifice,  the  direct  emana- 
tion of  pure  utilitarianism,  "is  the  sovereign  principle  of 
taxation."  ' 

And  yet  this  principle  affords  us  no  definite  data  for  the 
determination  of  rates.  The  rate  must  depend  upon  the 
relation  existing  between  the  decrease  of  utility  and  the 
increase  of  income.  According  to  Cohen-Steuart  the  rate  of 
the  decrease  of  the  utility  is  proportional  to  the  increase  of 
the  income.  Professor  Edgeworth,  on  the  other  hand,  main- 
tains that  the  decrease  of  the  former  is  at  a  more  rapid  rate 
than  the  increase  of  the  latter.^'  But  the  exact  ratio  is  theo- 
retically indeterminate.     And   hence  from  the  view-point  of 

'  Economic  Journal,  vol.  vii,  p,  556,  *  Ibid.,  p.  560. 


204  JUSTICE  IN  TAXATION  [540 

pure  theory  it  cannot  be  determined  what  rate  of  taxation 
would  effect  a  minimum  sacrifice.  About  all  that  can  be  said 
is  that  the  tax  rate  should  be  progressive  within  the  limits  of 
the  above  reservations. 

Such,  in  brief,  are  the  main  points  in  Professor  Edge- 
worth's  interpretation  of  the  "  sacrifice  theory"  as  a  basis  of 
taxation.  And  in  this  restatement  important  modifications 
of  the  theory  are  made.  It  is  to  us,  indeed,  of  no  little 
significance  that  we  have  the  weight  of  Professor  Edgeworth's 
authority — himself  a  utilitarian  economist — in  support  of  the 
contention  of  the  preceding  pages :  that  the  principles  of 
private  economic  activity  are  not,  as  supposed  by  Sax  and 
others,  applicable  to  the  economic  activity  of  political  or  col- 
lective life.'  As  Professor  Edgeworth  points  out,  the  true 
analogy  is  not  that  of  economic  bargains  governed  by  com- 
petition, but  that  of  economic  agreements  between  associa- 
tions of  employers  and  employees ;  "  where  the  action  of 
self-interest  being  suspended  by  mutual  opposition,  the 
more  delicate  force  of  amity,  which  even  in  economic  man 
is  not  entirely  wanting,  may  become  felt."  ^ 

Yet  even  in  its  modified  form  we  are  not  convinced  that 
the  sacrifice  theory  affords  a  better  statement  of  the  basis  of 
taxation  than  does  the  ability  theory ;  nor  do  we  see  any 
reasons  for  changing  our  previous  criticism  of  the  former 
theory.  In  fact.  Prof.  Edgeworth  does  not  claim  to  do  more 
than  to  bring  out  a  little  more  definitely  what  was  already 
impHed  in  Mill,  Sidgwick,  Meyer  and  others.  At  any  rate, 
as  we  have  understood  these  authors,  the  marginal  sacrifice 
occasioned  by  the  tax  has  meant  an  "  equi-marginal  "  sacri- 
fice; one  in  which  the  tax  imposes  exactly  the  same  sacri- 
fice upon  every  taxpayer,  though  not  of  absolutely  equal 
amounts,  viewed  objectively.  Yet  "  equi-marginal  "  has  the 
merit  of  giving  us  a  more  definite  expression  of  the  idea  in- 

1  Economic  Journal,  vol.  vii,  p.  551.  *  Ibid.,  p.  552. 


54l]  THE  ETHICAL  BASIS  OF  TAXATION  205 

volved.  But  whether  viewed  as  "  equal,"  "  proportiQiial,"  or 
"  equi-marginal,"  the  conception  of  sacrifice  affords  but  a 
most  intangible  basis  for  taxation — a  basis,  as  Professor 
Edgeworth  admits,  that  is  hedged  by  "  doubts  and  reserva- 
tions." 

Again,  it  may  be  admitted  from  a  certain  point  of  view 
that  the  procurement  of  the  greatest  amount  of  happiness — 
or  the  greatest  sum-total  of  utility,  or  the  minimum  of  dis- 
utility— is  the  true  aim  of  all  collective  action ;  but  it  is  by 
no  means  self-evident  that  this  "sum-total"  or  "minimum" 
pertains  to  the  collectivity  irrespective  of  the  distribution  of 
the  "utility"  or  "disutility"  among  the  individuals  that 
constitute  the  collective  whole.  Such  a  principle  is  not 
wholly  dissimilar  from  that  which  determines  monopoly 
prices,  the  sum-total  of  a  few  utilities  of  large  amounts  off- 
setting a  large  number  of  utilities  of  individually  small 
amounts.  True,  it  is  admitted  that  "  in  the  long  run  "  there 
is  probably  the  greatest  amount  of  individual  happiness 
when  there  is  the  greatest  sum-total  of  happiness ;  and  so  in 
the  long  run  it  is  of  no  practical  moment  which  point  of 
view  is  considered  to  be  the  correct  one.  Nevertheless, 
from  the  point  of  view  of  "  pure  theory"  it  is  by  no  means 
clear  that  the  largest  sum-total  of  utility  is  the  true  aim  of 
political  action.  Not  only  does  such  a  view  savor  of  a  col- 
lective entity,  but  it  assumes  as  a  basis  of  action  a  principle 
that  is  quantitatively  as  indeterminable  as  anything  that  is  to 
be  found  in  the  sacrifice  theory  of  Mill,  Sax,  or  Meyer.  A 
sum-total  of  utilities  has  no  meaning  apart  from  individual 
utilities ;  and  to  us  a  principle  that  looks  merely  to  the  sum 
of  happiness  and  not  to  its  extent,  that  permits  the  large 
total  of  the  utilities  of  a  few  to  be  set  ofif  against  the  large 
total  of  the  disutilities  of  many,  is  not  the  ideal  of  social 
justice.  It  is  not  sufficient  that  the  largest  sum-total  may  be 
consonant  with   the  largest  extent  of   individual   happiness* 


2o6  JUSTICE  IN  TAXATION  [542 

It  may  noi  be  so.  For  neither  logically  nor  practically  is 
what,  is  true  of  the  whole  necessarily  true  of  the  units.  The 
ideal,  then,  would  seem  to  be  the  minimum  of  sacrifice  to 
the  greatest  number,  which  in  the  long  run  may  produce  the 
minimum  of  total  sacrifice.  No  other  supposition  is  con- 
sistent with  the  ideals  of  democratic  institutions,  or  in  har- 
mony with  the  conditions  of  social  content. 

That  the  principle  of  equi-marginal,  or  minimum,  sacri- 
fice does  not,  as  we  have  seen,  afford  any  definite  rule  for 
taxation  is  not  perhaps  of  any  importance  in  itself.  But  it 
seems  a  littie  strange  that  one  who  is  par  excellence  a 
mathematical  economist  should  find  satisfaction  in  a  theory 
based  upon  a  principle  that  does  not  permit  of  an  exact 
mathematical  expression,  since  "  the  reasoning  from  the 
principle  of  minimum  sacrifice  assumes  no  exact  relation 
between  utility  and  means."  '  Nor  is  it  without  significance 
that  he  is  compelled  practically  to  abandon  the  subjective 
principle  and  to  find  the  determinants  of  rules  of  taxation  in 
objective  standards — in  the  economic  effects  of  the  tax  upon 
individuals  and  in  the  economic  conditions  of  the  taxpayers. 
But  in  this  respect  the  position  of  Edgeworth  is  similar  to 
that  of  Mill,  Meyer  and  Sax.  And  finally,  it  is  not  without 
interest  that  in  recognizing  that  there  is  no  exact  ratio 
between  utility  and  means,  Edgeworth  has  given  the  weight 
of  his  authority  against  the  futile  attempts  of  the  Dutch 
economists  to  reduce  taxation  to  an  exact  science. 

IV.  Conclusion  :  Ability  versus  Sacrifice 
The  preceding  discussion  on  the  basis  of  taxation  has 
throughout  implied  the  fact  that  the  tax  obligation  rests 
upon  persons,  not  upon  property;  that,  therefore,  the  basis 
of  taxation  has  specific  reference  to  some  fundamental  princi- 
ple that  attaches  to  the  person,  not  to  his  property.     Hence, 

*  Economic  yournal,  vol.  vii,  p.  567. 


543]  T'HE  ETHICAL  BASIS  OF  TAXATION  207 

therefore,  the  basis  of  the  tax  involves  two  fundamental 
ideas :  the  idea,  or  principle,  that  expresses  the  character  of 
the  tax  obligation  of  the  individual ;  and,  secondly,  the  prin- 
ciple of  the  universal  apphcation  of  the  basis,  or  the  relative 
obligation  of  taxpayers.  It  is  the  first  idea  that  has  been 
the  chief  subject  of  our  attention  in  the  present  chapter;  the 
second  will  be  the  subject  of  the  following  chapter. 

The  first  of  these  principles — the  basis  of  the  idea  that 
expresses  the  character  of  the  tax  obligation — we  have 
found  to  be  comprehended  and  expressed  in  two  different 
ways — from  the  view-point  of  the  ideas  contained  in  the 
term  "  ability,"  and  from  the  view-point  of  the  ideas  con- 
tained in  the  term  "  sacrifice."  That  there  is  significance  in 
both  of  these  conceptions  of  the  tax  basis  is  not  to  be 
denied ;  but  at  the  same  time  we  have  seen  reasons  for  hold- 
ing that  the  idea  connoted  in  the  term  "  ability "  more 
fully  expresses  the  ethical  basis  for  the  imposition  of  taxes^ 
since  it  is  the  relation  that  most  fully  comprehends,  not  only 
the  true  relation  of  the  individual  to  the  state,  but  also  the 
ethical  relations  of  the  individuals  in  the  state ;  is  most  ex- 
pressive, that  is,  of  the  fact  that  the  obligation  rests  upon 
persons.  Ability,  as  we  saw,  is  expressive  of  the  idea  of 
positive,  active  participation  in  the  expenses  of  the  state^ 
corresponding  to  the  positive,  active  participation  in  the 
ends  of  the  state.  It  is  expressive,  too,  of  the  voluntary 
character,  or  aspect,  of  tax  contributions ;  of  the  idea  of 
duty,  not  of  compulsion. 

On  the  other  hand,  we  have  seen  that  sacrifice  is  a  nega- 
tive concept ;  that  it  expresses  a  denial,  a  sacrifice  of  per- 
sonal satisfactions,  though,  it  is  true,  for  higher  satisfactions 
that  are  common  with  self  and  others.  It  also  contains 
more  the  idea  of  compulsion — the  compulsory  aspect  of 
taxation.  Undoubtedly  there  is  truth  in  this  view  of  the 
tax,  for  every  tax  necessarily  involves  a  sacrifice — a  conv- 


2o8  JUSTICE  IN  TAXATION  [544 

pulsory  sacrifice — of  personal  satisfactions  for  the  sake  of 
the  realization  of  collective  satisfactions.  And  it  is  true, 
too,  that  this  idea  of  sacrifice  is  of  a  distinctly  ethical  char- 
acter; of  a  character,  too,  that  is  complementary  of  the 
ethical  idea  contained  in  "  ability," 

But  while  all  of  this  is  true,  the  idea  of  sacrifice  does  not 
so  clearly  and  fully  represent  the  nature  of  the  ethical  basis 
— itself  based  upon  the  nature  of  the  state — as  does  the  idea 
of  ability ;  for  while  it  is  true  that  from  the  view-point  of 
individual  wants  a  sacrifice  is  involved,  from  the  larger  view- 
point of  the  complete  whole  of  the  individual  there  is  no 
sacrifice  in  taxation,  but  only  effort  towards  the  fulfilment  of 
the  conditions  of  the  more  perfect  realization  of  self. 

But,  again,  equality  of  sacrifice  is  a  refinement  of  justice 
that  it  is  inconceivable  the  state  should  ever  realize ;  for 
equality  of  sacrifice — relatively  equal  loss  of  enjoyments, 
=  equivalent  painful  sensations — are  conditioned  not  only 
by  property  conditions,  but  by  individual  character,  habits, 
sensibilities,  ideals,  etc.  Equivalence  of  sacrifice — of  feel- 
ings, of  sensations — is  an  ideal  conceivable  only  from  the 
view-point  of  individuals  as  a  whole,  in  their  ethical  relations 
to  each  other.  For  ourselves,  we  cannot  conceive  it  as  an 
ideal  which  it  is  any  part  of  the  duty  of  the  state  to  fulfil.^ 
The  ends  of  justice  are  satisfied  when  the  objective  econ- 
omic conditions,  or  the  objective  effects,  are  made  relatively 
the  same  by  the  tax.  Or,  again,  when  the  tax  is  adjusted 
to  the  ability  to  support  the  state  relatively  to  the  ability  to 
meet  the  demands  of  the  wants  of  the  self. 

Accepting,  then,  ability  as  the  best  expression  of  the 
ethical  basis  of  taxation,  though  at  the  same  time  recogniz- 
ing the  truth  contained  in  the  idea  of  equality  of  sacrifice, 
we  have  next  to  inquire  what  principles  flow  from  this  basis. 

'  "  In  framing  an  ideal,"  says  Aristotle,  "  we  may  assume  what  we  wish,  but  we 
should  avoid  impossibilities."     Politics,  ii,  pp.  6,  7. 


545]  THE  ETHICAL  BASIS  OF  TAXATION  209 

That  is,  since  the  primary  element  in  the  determination  of 
ability  (as,  indeed,  also,  of  sacrifice)  is  property,  or  more 
strictly,  income,  we  have  to  inquire  into  the  nature  of  the 
qualifications  and  limitations  of  the  taxation  of  income  that 
are  demanded,  in  order  to  meet  the  requirements  of  taxation 
according  to  ability;  or,  again,  what  principles  should  con- 
trol the  taxation  of  income  so  that  the  tax  may  meet  the 
demands  of  justice.  It  is  not  simply  or  chiefly  the  ability 
of  income  to  pay  taxes  relative  to  its  ability  to  satisfy  per- 
sonal wants,  but  it  is  a  question  of  the  relative  ability  of 
different  incomes  under  different  conditions  and  circum- 
stances ;  hence,  of  the  principles  that  should  determine  the 
taxation  of  income  under  these  different  conditions  and  cir- 
cumstances. Most  important  among  the  conditions  deter- 
mining the  ability  of  income,  that  is,  the  ability  of  its 
possessor,  is  the  character,  source,  and  size  of  income ;  and, 
therefore,  whether  the  income  should  be  taxed  at  different 
rates  according  to  these  circumstances  in  order  to  meet  the 
just  requirements  of  taxation  according  to  ability.  Finally, 
whether  under  any  circumstances  consideration  should  be 
given  to  the  needs  of  the  individual  as  against  the  demands 
of  the  state.  That  is,  whether  there  are  circumstances  in 
which  exemptions  may  be  allowed  without  infringing  upon 
the  principles  of  ability  and  universality. 


CHAPTER  VII 

ETHICAL  PRINCIPLES  OF  TAXATION 

By  the  ethical  principles  of  taxation  I  have  in  mind  those 
principles  that  are  deducible  from  the  ethical  basis  of  taxa- 
tion ;  the  principles  in  accordance  with  which  the  tax  burden 
must  be  distributed  to  meet  the  highest  requirements  of 
justice.  It  is  the  problem  of  determining  the  principles  that 
will  give  realization  to  the  ideal  of  taxation  based  upon 
ability.  These  principles  should  not  be  based  upon  mere 
sentiments,  or  upon  mere  abstractions.  To  have  consistency 
and  value  they  must  be  developments,  not  only  of  the  impli- 
cations contained  in  the  idea  of  "  ability  to  pay,"  but  must 
be  developments,  also,  of  the  theory  of  the  state,  on  which 
is  based  the  whole  theory  of  justice  in  taxation.  Or  these 
principles,  again,  should  be  developments  of  the  meaning  of 
"  ability,"  whether  they  take  the  form  of  positive  principles, 
or  of  exceptions  to  general  rules.  Exceptions  to  general 
rules  there  may  be,  but  not  exceptions  to  the  fundamental 
idea — taxation  according  to  ability.  The  exceptions,  as 
well  as  the  rules,  or  principles,  must  be  logically  contained 
in  this  idea.  This  distinction  is  important,  but  is  almost 
universally  overlooked,  thereby  leading  to  inconsistent  con- 
clusions, as  we  shall  have  occasion  to  see. 

The  development  of  these  principles,  which  involves  the 
development  of  the  principles  of  a  just  distribution  of  the  tax 
burden,  is  one  of  the  most  difficult  problems  within  the 
whole  field  of  taxation,  and  one  upon  which  there  is,  per- 
haps, the  most  diverse  opinion.  But  notwithstanding  these 
differences  of  opinion,  there  is  common  agreement  among  all 
2IO  [546 


547]  ETHICAL  PRINCIPLES  OF  TAXATION  211 

schools  of  economic  thought  that  justice  demands  that  the 
tax  should  be  distributed  equally  and  universally.  These 
two  principles — Equality  and  Universality — ,  which  are 
recognized  as  logical  deductions  of  both  the  ethical  and  the 
economic  basis  of  taxation,  are  regarded  even  more  as  the 
two  cardinal  principles  of  justice  in  taxation — of  taxation 
based  upon  ability  to  pay.  For,  since  the  ends  for  which 
the  state  exists  are  common  to  all,  justice  requires  that  every 
member  of  the  state,  indeed  every  person  that  participates  in 
its  ends,  should  contribute  to  its  support  to  the  extent  of  his 
ability,  relatively,  of  course,  to  the  ability  of  others.  The 
same  conclusion  is  reached  if  the  obligation  to  pay  taxes  is 
considered  from  the  viewpoint  of  the  ethical  relations  of  the 
membership  in  the  state,  of  the  character  of  the  members  as 
persons.  For  this  ethical  view  of  the  question  demands 
above  all  "equality"  of  taxation,  but  equality  implies  uni- 
versality. 

These  conclusions  are  not  new.  But  what  we  wish  to  call 
attention  to  here  is  that  the  principles  of  Equality  and  Uni- 
versality as  ethical  principles,  being  viewed  from  a  different 
standpoint  from  what  they  are  as  political  or  economic  prin- 
ciples, lead  to  different,  and,  indeed,  to  more  definite  con- 
clusions. Politically,  for  example,  the  meaning  of  "  equality  " 
is  vague,  while  the  principle  of  universality  stands  unqual- 
ified. Ethically  we  find  that  both  principles  are  conditioned' 
by  "  ability,"  and  that,  therefore,  they  may  need  qualifica- 
tion and  limitation.  In  other  words,  the  ethical  contents  of 
these  principles  supplement  and  complete  their  political  and 
economic  contents.  Indeed,  we  might  say  that  they  are 
political  and  economic  principles  only  because  of  the  ethical 
implications  involved  in  the  political  and  economic  bases  of 
taxation.  At  any  rate,  it  is  in  the  development  of  the  con- 
tent of  these  principles  that  we  develop  the  content  of  the 
ethical  basis  of  taxation — taxation  according  to  ability. 


212  JUSTICE  IN  TAXATION  [548 

I.  The  Principle  of  Equality 

That  equality  in  taxation  means  a  relative  equality  few  will 
deny.'  It  means  that  there  should  be  the  same  relative 
economic  conditions  after  as  before  the  tax.  Viewed  with 
respect  to  ability  to  pay  it  means  that  there  should  be  the 
same  relative  economic  ability  after  as  before  the  tax  for  the 
satisfaction  of  personal  wants.  Subjectively  considered — 
as  equality  of  sacrifice — it  means  that  there  should  be  the 
same  relative  intensity  of  feeling  of  wants  unsatisfied  because 
of  the  tax;  or,  if  you  will,  of  the  wants  last  attaining  satisfac- 
tion. Or,  again,  since  income  is  the  primary  factor  in  the 
determination  of  (objective)  ability,  equality  in  taxation 
means  that  the  tax  should  take  such  portions  of  income  as 
will  leave  the  same  relative  amounts  for  the  satisfaction  of 
private  needs,  their  objective  importance,  or  their  subjective 
intensity  being  considered ;  or  it  means  that  income  should 
be  so  distributed  between  the  satisfaction  of  collective  and 
private  needs — between  public  and  private  expenditure — 
that  there  shall  be  the  same  proportional  satisfaction,  the 
same  proportional  expenditure,  for  each  when  viewed  with 
reference  to  their  relative  importance,  or  their  relative 
intensities. 

The  problem  of  realizing  equality  m  taxation,  therefore,  is 
a  problem  of  the  just  distribution  of  taxes,  or  of  the  just 
distribution  of  income  between  collective  and  private  wants. 
The  question,  then,  resolves  itself  into  this,  What  propor- 
tions of  different  incomes  must  be  taken  so  that  the  tax  may 
be  proportioned  to  ability,  and  thereby  a  relative  equality  be 
established?     In  other  words,  in  distributing  the  tax  so  as  to 

'  Von  Hock,  as  we  have  seen,  makes  exception  of  the  tax  for  the  protection  of 
the  person,  which  he  thinks  should  be  absolutely  equal.  The  tendency  of  com- 
munism, too,  is  to  make  the  burden  of  the  government  absolutely  equal.  And  even 
such  an  individualist  as  the  late  Thomas  Davidson  once  questioned,  in  conversa- 
tion with  the  writer,  whether  all  taxes  should  not  be  absolutely  equal. 


549]  ETHICAL  PRINCIPLES  OF  TAXATION  213 

realize  a  relative  equality  according  to  ability,  Should  there 
be  the  same  rate,  the  same  proportional  tax,  for  all  incomes? 
Or,  Does  the  "  equality  "  necessitate  different  rates  accord- 
ing to  the  size,  character,  and  amount  of  income?  For  if 
these  affect  the  ability  they  must  likewise  affect  the  rate. 

I .  Rate  and  Source  of  Income.  It  is  the  belief  of  many 
writers  on  taxation  that  the  ability  to  pay  taxes  is  very 
largely  affected  by  the  source  of  income,  and  that,  therefore,, 
there  should  be  differential  rates  according  as  the  income  is 
"funded"  or  "unfunded,"  is  derived  from  inheritance,  from 
monopoly,  from  "  quasi-rents,"  or  from  speculation.  In 
practice,  however,  but  little  consideration  has  been  given  to 
the  source  of  income.'  Let  us  examine  briefly  the  grounds 
for  such  distinctions,  that  we  may  see  to  what  extent  ability 
is  affected  by  the  source  of  income,  and  thereby  differential 
rates  are  justified. 

(i)  Funded  and  Unfunded  Incomes.  According  to  Mill,  « 
funded  income,  or  income  from  property,  has  a  greater  tax-| 
ing  ability  than  unfunded,  or  personal  income,  because  of  its 
greater  permanence.^  Wagner  assigns  two  reasons — because 
funded  income  leaves  the  entire  labor  power  wholly,  or  for 
the  most  part,  free  for  other  acquisitions ;  and  because  per- 
sonal income  has  more  necessary  expenses  to  meet,  such  as 
provisions  against  sickness,  old  age,  etc.3  With  Meyer  the 
only  basis  of  distinction  is,  that  "  property  is  not  only  and 
not  always  a  source  of  income,  but  it  may  be  immediately 
applied  for  the  satisfaction  of  needs  "  *  in  emergency  cases. 

As  to  the  argument  of  Mill,  it  contains  only  a  partial 
truth.  For,  as  far  as  life  incomes  are  concerned,  the 
economic  necessities  of  the  business  world  and  the  growing. 

1  The  Italian  income  tax  is  a  partial  exception.     Cf.  L.  Say,  op.  cit.,  ii,  p.  152. 

^  Mill,  Polit.  Econ.,  v.  2,  §  4. 

'  Op.  cit.y  ii,  p.  56.     Cf.  also  Neumann,  Die  Progressivsteuer,  p.  178. 

*  Op.  cit.,  p.  326. 


214  JUSTICE  IN  TAXATION  [550 

Civil  Service  provisions  of  governments  tend  to  a  per- 
manency of  salaried  positions  that  makes  unfunded  incomes 
not  a  whit  less  permanent  than  funded  incomes.  In  fact, 
many  personal  incomes  are  more  permanent  than  property 
incomes ;  and  besides,  there  are  degrees  of  permanence  in 
both.'  So  far,  then,  as  the  difiference  is  due  to  a  difference 
in  the  permanence  of  income  it  is  a  question  pertaining  to 
the  character,  not  to  the  source,  of  income. 

The  second  argument  of  Wagner  is  but  a  fuller  statement 
of  the  argument  of  Mill,  for  it  is  the  assumed  temporary 
character  of  personal  income  that  necessitates  a  larger  out- 
lay to  provide  against  future  needs.^  So  far  as  this  argu- 
ment relates  to  perpetual  family  income  it  contains,  indeed, 
much  force  of  reason ;  for  of  two  equal  incomes  there  is  un- 
doubtedly greater  tax  ability  in  the  perpetual,  than  in  a  life, 
and  still  more  than  in  a  temporary,  income.  But  this, 
again,  is  a  question  of  the  character,  not  of  the  source  of 
income. 

As  to  the  first  argument  of  Wagner,  the  primary  conten- 
tion is  true,  but  the  conclusion  unwarranted.  If,  for 
example,  A  and  B  have  each  a  personal  income  of  $1000, 
and  A  has  in  addition  a  funded  income  of  $1000,  it  is  no 
reason  in  itself  why  A  should  pay  a  higher  rate  on  his 
funded  income.  He  simply  has  twice  the  income  that  B 
has,  and  if  his  ability  is  more  than  proportionately  increased 
thereby,  it  is  due  to  the  size  of  his  income  relatively  to  his 
needs,  as  compared  with  the  size  of  the  income  of  B  relatively 
to  his  needs.  In  determining  A's  ability  it  is  of  no  impor- 
tance that  he  is  free  to  earn  a  personal  income  in  addition 
to  his  property  income,  unless,  indeed,  we  accept  Walker's 
theory  of  potential   ability.     So  far  as  this  particular  argu- 

^  Cf.  Meyer,  ibid.,  p.  327. 

*  To  Sax  this  is  theonly  ground  for  a  differential  tax  on  funded  incomes.     Cf. 
Grundie^unft'p.  $14. 


5  5  I  ]  ETHICAL  PRINCIPLES  OF  TAX  A  TION  2  I  5 

ment  is  concerned — i.  e.,  leaving  aside  other  characteristics 
of  funded  incomes — the  question  is  simply  one  of  the  size  of 
A's  income  as  compared  with  B's,  and  consequently  of  his 
relative  ability.     This  question  will  be  considered  presently. 

The  position  of  Meyer  is  equally  untenable,  and,  besides, 
if  it  is  not  inconsistent  with  the  declaration  of  the  preceding 
page,  that  as  there  is  practically  no  difference  in  the  per- 
manency of  funded  and  unfunded  incomes  there  is  in  this 
respect  no  difference  in  ability,  it  represents,  at  least,  a  con- 
fusion of  ideas.  For  the  real  comparison  is  between  differ- 
ent sources  of  income,  whereas  with  Meyer  it  is  virtually 
between  income  and  property.  Or,  more  strictly,  his  com- 
parison is  between  those  who  have  property  but  no  income, 
and  those  who  have  neither  property  nor  income.  Be  this 
as  it  may,  it  is  quite  true  that  as  between  the  possessor  of  a 
funded  and  the  possessor  of  an  unfunded  income,  the  former 
can  continue  satisfying  his  needs,  presumably  also  his  collec- 
tive needs,  after  income  ceases,  while  the  latter  can  not.  But 
this  advantage  is  in  the  possession  of  property,  not  in  a  par- 
ticular kind  of  income  ;  since  the  incomes  being  assumed  to 
have  equal  permanence  represent,  as  incomes,  equal  ability. 
But  if  the  mere  possession  of  property  gives  greater  ability  to 
pay  taxes,  it  must  exist  whether  or  not  the  property  is  yielding 
an  income,  and  must  exist  so  long  as  there  is  private  prop- 
erty ;  and  at  the  same  time  differ  in  degree  among  different - 
property  holders  according  to  the  amount  of  property  pos- 
sessed. But  this  "ability"  could  be  reached  only  by  a 
real  tax  on  property,  and  by  such  dififerential  rates  that  it  is 
difificult  to  see  where  they  would  stop  short  of  confiscating 
all  private  property,  or  equalizing  its  possession — as  com- 
pared, of  course,  with  the  non-income  receiver. 

Upon  the  whole,  then,  we  must  agree  with  Sax,  that  the 
only  reason  that  a  funded  income  gives  a  greater  ability  than 
an  unfunded  income  is,  because  it  does  not  necessitate  the 


2i6  JUSTICE  IN  TAXATION  [552 

same  saving  to  provide  against  future  needs.'  The  posses- 
sion of  property  may,  indeed,  have  this  same  advantage,  but 
only  in  a  very  Hmited  way,  since  in  most  cases  it  would  soon 
be  exhausted.  It  is  not  a  taxable  advantage.  Property 
itself  gives  a  tax  ability  not  because  it  may  be  used  to  satisfy 
future  wants,  but  because  it  has  the  power  of  yielding  a 
future  income  to  satisfy  future  wants.  This  advantage,  how- 
ever, is  limited  in  scope,  and  has  special  application  only  to 
perpetual  incomes,  for  reasons  previously  given. 

(2)  Inheritance  and  Gifts.  That  inheritance  of  property 
(including  bequests)  and  gifts  tend  to  increase  the  tax 
ability  of  the  recipient  no  one  can  safely  deny.  At  the  same 
.time  it  must  be  admitted  also,  that  there  are  many  cases 
where  an  inheritance,  or  a  bequest,  carries  with  it  a  de- 
crease of  ability,  if  we  consider  the  family  as  the  taxable 
unit ;  for  with  the  inheritance  or  bequest  there  is  a  loss  of 
the  salary  of  the  head  of  the  family.'^  But  so  far  as  there  is 
a  real  addition  to  the  tax  ability  of  the  recipient  it  is  not  to 
be  measured  by  the  amount  of  the  inheritance  as  in  itself  an 
additional  income,  for  I  cannot  regard  an  inheritance  as  a 
true  income.  It  may  be  a  source  of  new  income  to  the 
inheritor,  but  it  is  not  itself  income.  The  ability,  therefore, 
is  increased  only  to  the  extent  of  the  income-producing 
power  of  the  property  inherited.  This  ability  is  not  con- 
fined to  the  year  of  the  inheritance,  but  lasts  as  long  as  the 
income  from  it  lasts.  In  fine,  the  increased  ability  resulting 
from  an  inheritance  is  confined  solely  to  the  effects  of  the 
inheritance  upon  the  income  of  the  inheritor,  either  with 
respect  to  its  annual  increase  in  size  or  to  its  funded,  or 
perpetual,  character. 

The  same  holds  true  of  gifts,  particularly  of  productive 
property.     In  the  case  of  money  gifts  for  defraying  living 

^  Cf.  also  Cohn,  op.  cit.,  p.  359. 

"  Cf.  West,  The  Inheritance  Tax,  p.  1 18. 


553]  ETHICAL  PRINCIPLES  OF  TAXATION  217 

expenses,  whether  occasional  or  continuous,  the  gift  is  justly  a 
part  of  the  annual  income.  This  is  true,  also,  of  inheritances 
or  bequests  in  the  form  of  annuities,  or  life  incomes.  If  B 
receives  from  A  $100,000,  his  ability  is  increased  just  to  the 
extent  that  A's  decreases — to  the  extent  of  the  income-pro- 
ducing power  of  the  $100,000,  no  more,  no  less. ,  The  ability 
that  centered  in  the  personality  of  A  now  centers  in  the 
personality  of  B. 

That  the  increased  ability  comes  gratuitiously  is  not  a 
matter  that  can  have  any  weight,  so  long  as  the  present 
property  relations  are  sanctioned  by  the  law  of  the  land.' 
All  that  justice  requires  is  that  the  government  should  ascer- 
tain the  existing  tax  ability  of  every  taxpayer.  To  tax  the 
inheritance  or  gift,  other  than  as  specified,  is  to  put  a  tax 
upon  capital,  though  not,  it  is  true,  upon  the  national  capi- 
tal.' The  tax  should  be  on  the  income,  not  on  the  property, 
if  it  is  to  be  a  tax  on  ability.  That  an  inheritance  tax  may 
be  justified  for  other  reasons,  as  compensatory  for  evaded 
taxes,  payment  for  special  services,  etc.,3  we  would  not  deny, 
but  we  cannot  agree  with  Meyer  that  a  tax  on  inheritance  is 
justified  on  the  ground  of  greater  tax  ability ,♦  for  this  ability 
is  amply  reached,  to  the  ends  of  justice,  by  taxing  the  income 
from  the  inheritance,  the  income  being  the  only  ground  of 
the  increased  ability. 

(3)  Monopoly  and  Quasi-rent  Income.  At  first  thought  it 
might  appear  that  a  differential  tax  rate  would  be  justified 
on  monopoly  incomes  on  the  ground  that  such  incomes 
have  a  special  tax  ability,  relatively  to  other  incomes,  since 
they  result  from  special  advantages  in  income-earning  power. 

*  Cf.  Wagner,  per  contra,  ii,  p.  588. 

'  As  clearly  demonstrated  by  Mill.     Cj.  Polit,  Econ.,  v,  2,  7. 

'  For  a  good  summary  of  arguments  for  special  tax  on  gifts  and  inheritances  see 
Max  West,  op,  cit.,  ch.  v. 

*  Meyer,  op.  eit.,  p.  359. 


2l8  JUSTICE  IN  TAXATION  [554 

On  account  of  these  advantages,  whatever  their  source,  the 
tendency  is  to  give  the  holder  of  the  monopoly  an  additional 
income  above  the  average  of  non-monopoly  incomes,  and  so 
to  increase  his  ability  to  the  extent  of  the  monopoly  incre- 
ment of  his  income.  All  this  may  be  true.  But  this  does 
not  give  A,  with  a  monopoly  income,  a  greater  ability  than 
B  has  with  an  equal  but  non-monopoly  income,  their  condi- 
tions being  otherwise  the  same.  Both  A  and  B,  with  respect 
to  C  with  his  smaller  income,  have  the  same  relative  advan- 
tage, the  same  relative  increase  of  ability.  It  is  simply  a 
question  of  the  size  of  the  income.  On  the  mere  ground  of 
abiHty,  therefore,  the  tax  rate  on  A's  income  should  be  the 
same  as  that  on  B's  income.  The  fact  that  it  is  a  monopoly 
income  does  not  in  itself  give  it  greater  tax  paying  ability. 

However,  a  special  tax  on  monopoly  incomes  may  be 
justified  on  other  grounds.  All  monopolies,  whether  natural 
or  capitalistic,'  are  at  bottom  legal  or  social  creations,  and 
society  has,  therefore,  a  peculiar  claim  upon  the  increased 
ability  resulting  from  the  monopoly  increment  of  income. 
Particularly  is  this  the  case  where  the  monopoly  utilizes 
public  property,  such  as  streets,  or  is  in  any  sense  a  legal 
creation  (which  includes  capitalistic  monopolies)."  It  is 
only  justice  that  incomes  due  to  special  privileges  of  govern- 
ment should  compensate  the  government  for  them.  That 
society  should  absorb  the  full  monopoly  increment  of  income 
cannot  be  granted,  for  it  receives  back  indirectly  many 
advantages  from  the  monopoly,  as,  for  example,  from  the 
private  ownership  of  land,  or,  in  the  case  of  capitalistic 
monopolies,   from    the   concentration   of  productive  wealth 

*  Such  we  understand  to  be  those  huge  corporations  where  the  concentration  of 
enormous  wealth  under  one  management  makes  possible  a  control  over  prices. 
Examples:  The  Standard  Oil  Company,  the  United  States  Steel  Corporation, 
though  both  are  partly,  also,  natural  monopolies. 

*  Which,  by  their  incorporation,  become,  in  a  sense,  legal  monopolies. 


5551  ETHICAL  PRINCIPLES  OF  TAXATION  219 

under  the  management  of  the  most  efficient  and  competent 
entrepreneurs. 

The  case  is  very  similar  where  the  income  is  due  to  social 
conditions  more  than  to  personal  effort,  as  is  the  case  with 
"  unearned  increments."  Of  this  class  "  ground  rent"  is  the 
best  example.  Here  the  "  unearned  increment  " — rent — is 
peculiarly  a  social  product,  and  society  has,  therefore,  a 
peculiar  claim  upon  it.  We  are  not  prepared,  however,  to 
concede  that  society  should  claim  the  whole  of  the  unearned 
income — the  "  ground  rent;"  both  because  society  indirectly 
receives  many  advantages  from  this  private  "  monopoly," 
and  because  it  would  tend,  in  many  cases,  to  discourage  the 
most  efficient  use  of  the  land.  But,  in  any  case,  society 
cannot  justly  absorb  the  "  unearned  increment"  of  the  past, 
or  its  capitalized  value ;  for  in  most  cases  the  rent,  to  the 
present  holders,  is  not  an  "unearned  increment,"  but  inter- 
est on  capital  invested.  Still,  it  must  be  admitted  that 
society  has  a  special  claim  to  this  class  of  income,  not  only 
because  largely  a  social  product,  but  because  society,  as 
Henry  George  rightly  claims,'  has  a  just  claim  upon  the  soil. 
But  a  differential  tax  is  not  justified  on  the  ground  of  a 
peculiar  ability,  other  than  that  which  comes  from  the  size  of 
the  income. 

Much  the  same  conclusions  follow  with  respect  to  "  quasi- 
rent  " — to  ^«^^/-monopoly  income.  To  the  extent  that 
income  is  increased  by  means  of  these  "  rents  "  there  is  an 
increase  in  tax  ability,  but  the  ability  to  pay  taxes  is  not 
increased  by  the  mere  fact  that  any  part  of  the  income  has 
its  source  in  a  "  guast-rent."  But  on  the  other  hand,  there 
is  not  the  same  ground  for  a  differential  rate,  or  a  special 
tax,  upon  the  income  of  "  qi^asi-rents"  as  there  is  upon  pure 
monopoly  income,  both  because  it  results  more  from  per- 

*  C/.  Progress  and  Poverty,  B.  vii,  ch.  i. 


220  JUSTICE  IN  TAXATION  [556 

sonal  efficiency  than  from  social  causes,'  and  because  such  a 
tax  would  have  a  more  immediate  and  more  direct  effect 
upon  production  and  consumption.  As  Professor  Ross 
holds,  a  tax  on  the  "consumer's  rent"  would  tend  to  lessen 
consumption  and  thereby  work  injuriously.  But  the  con- 
tention of  Professor  Ross  that  the  "producer's  rent"  is  a 
specially  good  subject  for  taxation,  since  such  a  tax  would 
curtail  production  least,'  can  be  accepted  only  with  qualifica- 
tion. It  may  be  true  with  respect  (to  monopoly  rent,  but  a 
special  tax  upon  the  "producer's  rent,"  as  "profits "3  of  the 
entrepreneur,  would  be  in  effect  a  penalty  upon  individual 
capacity  and  efficiency  in  production,  and  would  tend  to  cur- 
tail production. 

(4)  Income  from  Speculation.  We  need  not  stop  to  dwell 
on  the  income  from  speculation.  It  does  not  differ  from 
other  income  in  its  abihty-giving  power.  It  involves  large 
risks  and  may  result  in  large  returns,  and  it  is  the  size  of 
these  returns  that  determines  the  tax  ability,  so  far  as  this  is 
effected  by  income.  But  there  are  different  kinds  of  specu- 
lation, and  the  question  whether  there  should  be  a  differen- 
tial tax  upon  speculative  profits  must  be  decided  in  each 
case  according  to  circumstances.  In  some  cases,  as  in 
illegitimate  speculation,  a  special  tax  may  be  demanded  for 
police  purposes,  but  in  no  case  does  speculative  income 
carry  with  it  any  special  tax  ability.  On  the  contrary,  such 
income  tends  to  give  less  ability  on  account  of  the  possibility 
of  its  loss  in  the  immediate  future. 

Upon  the  whole,  then,  we  find  no  reason  for  holding  that 
the  ability  of  any  person  to  pay  taxes  is  affected  by  the 
source  of  his  income.  The  mistake  of  those  who  hold  to  the 
contrary  is  due,  we  think,  to  their  attaching  ability  to  the 

*  The  "quasi-rent  "  of  capital  would  be  a  partial  exception. 
•Ross,  "A  New  Canon  of  Taxation,"  in  Polit.  Set.  Quart.,  vol.  vii. 

•  See  Walker,  Political  Economy,  bk.  iv,  ch.  4. 


557]  ETHICAL  PRINCIPLES  OF  TAXATION  221 

object  of  the  tax — the  income — rather  than  to  its  subject — 
the  person.  As  Vocke  says,  "  The  tax  on  the  basis  of  real 
abiHty  knows  no  object,  but  only  a  subject  and  a  measure. 
The  subject  is  constantly  changing,  let  the  source  of  the 
income  be  where  it  will."'  In  other  words,  income  deter- 
mines ability  only  so  far  as  it  relates  to  the  satisfaction  of 
wants — future  as  well  as  present.  This  satisfaction  is  not 
influenced  by  the  source  of  income,  but  only  by  its  character 
and  size,  or  by  source  only  as  character  and  size  of  income 
are  reflected  in  the  source. 

2.  Rate  and  Character  of  Income.  By  the  character  of 
income  is  understood,  whether  it  is  permanent  and  secure, 
or  temporary  and  precarious.  Do,  now,  these  character- 
istics of  income  produce  differences  in  tax  paying  ability 
that  justify  differential  rates?  Not,  it  may  be  answered, 
the  characteristics  per  se.  From  the  viewpoint  of  income 
alone  it  is  of  no  consequence  to  ability  whether  the  income 
be  permanent  or  temporary.  If  permanent  it  pays  taxes 
permanently,  if  temporary  it  pays  taxes  temporarily.'  These 
characteristics  assume  importance  only  because  of  their  in- 
fluence upon  the  satisfaction  of  future  wants.  Mill,  for 
example,  held  that  permanent  incomes  should  be  taxed 
more  highly  than  temporary  incomes,  and  temporary  more 
highly  than  precarious,  for  the  reason  that  temporary,  and 
still  more  precarious,  incomes  have  to  make  larger  outlays 
to  provide  against  future  wants — sickness,  old  age,  etc.' 
This  is  a  very  commonly  accepted  doctrine,  and  is,  as  we 
have  seen,  the  only  ground  for  the  assumption  that  funded 
incomes  give  a  greater  ability  than  unfunded  incomes.* 

This  position  we  believe  to  be  theoretically  sound,  for 
since  the  taxpayer  is  a  person  it  is  necessary  and  just  that 
his  future  needs  be  taken  into  consideration  in  relation  to 

»  op.  cU.,  p.  465.  »  Cf.  Vocke,  ibid. 

'  Mill,  Political  Economy,  v.  2,  §  4.  *  See  also  Vocke,  p.  466. 


222  JUSTICE  IN  TAXATION  [558 

the  probabilities  of  this  future  means  for  their  satisfaction. 
Practically,  however,  allowance  for  future  demands  on 
present  incomes  leads  to  grave  difificulties.  To  begin  with, 
the  theory  assumes  that  every  person  who  receives  a  tem- 
porary or  precarious  income  saves  a  part  of  his  income  and 
invests  it  in  insurance,  or  otherwise,  to  provide  for  future 
wants.  Or,  if  actual  saving  does  not  take  take  place,  it  is 
presumed  that  it  ought  to  take  place.  But  admitting  that  a 
part  of  the  income  is  saved  to  provide  for  future  wants,  it 
follows  that  there  is  proportionately  less  income  to  satisfy 
present  wants,  and  therefore  less  tax  ability.  This  is  too 
self-evident  to  need  illustration.  If,  then,  such  '  savings '  are 
justified  it  follows,  on  the  ground  of  tax  ability  alone,  that 
they  should  be  exempted  from  taxation ;  or,  what  amounts 
to  the  same  thing,  that  temporary  incomes,  from  which 
savings  are  made  for  the  future,  should  be  favored  by  differ- 
ential rates.  But  it  is  believed,  that  not  only  is  such  saving 
justified  from  the  viewpoint  of  the  individual,  but  that  it  is 
sound  political  policy  to  encourage  it,  lest  the  receivers  of 
temporary  incomes  (still  more  of  precarious  incomes)  may 
become  future  public  charges. 

But  upon  what  basis  of  savings  should  such  differential 
rates  be  established?  To  base  them  upon  actual  savings 
would  admittedly  be  a  most  difificult  problem  in  practice. 
Accordingly,  Mill  thinks  that  "  the  next  best  thing  in  point 
of  justice"  is  "to  take  into  account  in  assessing  the  tax, 
what  the  different  classes  ought  to  save."  '  This  we  believe 
to  be  a  very  questionable  solution  of  the  difficulty.  It 
opens  up  at  once  most  perplexing  problems.  Unless  what 
is  exempted  is  actually  saved  there  results  the  injustice  of 
what  is  virtually  regressive  taxation,  equal  incomes  being 
taxed  at  different  rates.  But  above  all,  it  raises  the  query, 
How  much  "ought"  one  to  save  from  a  temporary  and  a 

*  Political  Economy,  v,  2,  §  4. 


559]  ETHICAL  PRINCIPLES  OF  TAXATION  223 

precarious  income  for  future  needs?  It  must,  of  course, 
bear  some  relation  to  the  amount  of  the  income  and  to  the 
accepted  standard  of  life.  But  whatever  the  amount  pre- 
sumed to  be  saved,  no  government  could  consistently,  or 
justly,  exempt  from  taxation  what  "  ought "  to  be  saved 
unless  the  saving  was  enforced  by  compulsory  insurance,  or 
in  some  other  manner.  To  exempt  any  portion  of  a  tem- 
porary income,  on  the  assumption  that  it  is  saved  to  provide 
for  future  needs,  would  be  grossly  unjust  if  the  exempted 
income  is  squandered  on  present  pleasures.  No !  To 
accept  what  ought  to  be  saved  as  the  standard  makes  it 
obligatory  upon  the  government  to  see  that  the  actual 
corresponds  to  the  ideal. 

Nevertheless,  admitting  the  justice  and  right  of  "  savings" 
from  temporary  incomes,  we  believe  that  the  theory  of  eco- 
nomic ability  requires  that  there  should  be  difTerential  rates 
in  favor  of  those  incomes  from  which  savings  are  actually 
effected.  But  we  cannbt  agree  with  Mill,  that  the  basis  of 
such  rates  should  be  what  one  "  ought  to  save."  Not  that 
we  fear  any  bugbear  of  "  paternal  socialism,"  nor  because 
we  think  the  government  would  thereby  overstep  the  limits 
of  its  functions  (for  these  we  have  seen  to  be  relative')  ;  but 
because  consideration  of  the  actual  savings  is  not  only  all 
that  is  required  by  theoretical  justice,  but  because,  in  spite 
of  the  practical  difificulties,  rates  based  upon  actual  savings, 
we  believe,  would  approximate  most  nearly  to  the  ideals  of 
justice.  Nor  is  it  any  argument  against  differential  rates  on 
temporary  incomes  that  they  pay  taxes  only  temporarily, 
while  permanent  incomes  pay  taxes  permanently.""  The 
argument  rests  upon  the  old  fallacy  that  a  tax  is  upon  the 
income,  or  property,  not  upon  the  person,  and  that  mere 
income  is  the   measure   of   ability — a  fallacy  that  is  at  the 

'  See  ante,  pp.  26,  27  and  52. 

'  See,  for  example,  Perry,  op.  cit.,  p.  519. 


224  JUSTICE  IN  TAXATION  L560 

root  of  many  false  solutions  of  tax  problems.  Once  com- 
prehend that  only  the  individual,  the  person,  can  be  the 
subject  of  a  tax  and  the  way  is  cleared  to  a  more  easy  solu- 
tion of  many  tax  problems. 

But  dififerential  rates,  or  exemptions,  on  account  of  the 
savings  from  temporary  incomes  for  future  needs,  involves 
or  implies  an  important  consequence :  That  it  is  the  right  of 
the  individual  to  provide  for  his  future,  and  therefore,  also, 
of  necessity,  his  present,  necessary  needs  before  he  is  under 
obligation  to  contribute  to  the  support  of  the  state.  Though 
a  debatable  question  I  believe  the  conclusion  to  be  sound, 
but  we  may  best  discuss  this  phase  of  the  question  when  we 
come  to  tax  exemptions. 

3.  Rate  and  Amount  of  Income.     Of  far  greater  import- 
ance than  the  source  or  the  character  of  income,  in  the  de- 
termination of  the  ability  of  the  taxpayer,  is  the  amount  of 
the  individual  income  received.     Normally  income  is  both 
'i  the  means  by  which  we  satisfy  our  economic  wants  and  the 
source  of  our  tax  contributions.     The  ability  to  pay  taxes  is, 
therefore,  conditioned  by  the  ability  to  satisfy  our  personal 
.wants,  but  this  latter  ability  in  turn  is  necessarily  conditioned 
'  by  the  amount  of  income  at  our  disposal.     Clearly,  then,  the 
i  amount  of  taxes  that  one  can  pay  is  conditioned  by  the 
amount  of  his   income,  other  conditions   remaining  equal. 
«This  no  one  will  deny.     But  we  have  found  that  justice  re- 
quires that  taxes  should  be  based  upon  relative  ability,  that 
the  burden  should  be  equal;   or  that  such  portion  of  each 
income  should  be   taken  for  taxes  as  will  leave  the  same 
relative   ability   to    satisfy  wants    after    as    before    the    tax. 
Hence  the  first  principle  of  justice  in  the  distribution  of  the 
tax  is  that  taxes  should  be  imposed  in  proportion  to  the 
ability  to  pay.     But  ability,  we  have  said,  is  relative  to  the 
amount  of  income.     The  question  before  us,  therefore,  comes 
to  this :   In  what  ratio  must  incomes  be  taxed,  with  respect 


56 1]  ETHICAL  PRINCIPLES  OF  TAXATION  225 

to  their  size,  in  order  that  the  tax  may  be  proportional  to 
ability — that  a  relative  equality  in  taxation  may  be  estab- 
lished? 

The  answer  to  this  question  is  by  no  means  a  simple  one 
Indeed,  to  determine  what  portions  of  incomes  of  different 
sizes  must  be  taken  as  a  tax,  in  order  to  effect  a  true  pro- 
portion according  to  ability,  is  perhaps  the  most  difficult 
problem  within  the  whole  field  of  tax  distribution.  It  is 
certainly  a  crucial  problem,  and  its  answer  supplies  the  basic 
principle  of  just  taxation — the  just  rate  of  taxation  on  in- 
come. This  has  no  reference  to  an  income  tax.  By  income 
we  mean  the  total  income  of  the  individual,  whatever  may  be 
its  source.  There  may  without  any  injustice  be  different 
rates  on  different  species  of  income,  or  property,  either  for 
administrative  purposes  or  otherwise.  The  question,  how- 
ever, is:  What  should  be  the  average  rate  for  the  total  income 
if  taxation  is  to  be  according  to  ability?  In  other  words, 
In  what  measure  does  ability  vary  with  the  size  of  the  income? 
The  idea  of  absolute  equality  in  taxation  being  excluded, 
except  in  communistic  or  socialistic  societies,  we  have  left 
the  possibilities  that  ability  varies  regressively,  proportion- 
ally, progressively,  or  degressively  with  income.  But  re- 
gressive taxation — an  increasing  rate  with  a  decreasing 
income — is  not  less  absurd  than  the  idea  of  absolute  equality, 
and,  in  fact,  is  contended  for  by  no  one ;  though  particular 
forms  of  regressive  taxes  are  found  in  all  countries,  and  are 
not  necessarily  inconsistent  with  justice.  Degressive  taxa- 
tion— proportional  on  all  income  above  a  fixed  limit,  pro- 
gressive backwards  from  the  same  limit — is,  in  effect,  a  mild 
form  of  progression,  being  a  decreasing  progression  on  the 
total  income  until  the  rate  becomes  practically,  though 
never  theoretically,  proportional.  It  rests,  however,  upon 
somewhat  different  grounds  from  the  progressive  tax  and 
arises  from  exemptions,  and  may,  therefore,  better  be  con- 
sidered in  connection  with  universality  in  taxation. 


226  JUSTICE  IN  TAXATION  [562 

We  have  left,  therefore,  proportional  and  progressive  tax- 
ation, and  the  problem  is  to  determine  which  of  these  plans 
most  fully  realizes  equality  in  taxation — taxation  propor- 
tional to  ability.  It  will  not  be  necessary,  for  our  purpose, 
to  go  into  an  extended  discussion  of  every  phase  of  pro- 
portional and  progressive  taxation,  but  we  may  say  in 
general,  that  conclusions  respecting  either  system  de- 
pends upon  our  theory  of  the  state,  our  conception  of  the 
ethical  basis  of  taxation,  and  not  less  upon  consistent  and 
logical  deductions.'  In  general,  those  who  uphold  the  pro- 
tective theory  of  the  state  and  the  benefit  theory  of  taxation 
advocate  proportional  taxation,  while  supporters  of  what  has 
here  been  called  the  ethical  theory  of  the  state,  and  of  the  abil- 
ity theory  of  taxation,  tend  to  the  advocacy  of  progressive  tax- 
ation.''  To  the  former  class  belong  the  English,  the  French 
and  the  earlier  German  economists;  to  the  latter,  the  later 
German  economists  and  those  who  have  come  under  their 
influence, 

(i)  Proportional  Taxation.  Proportional  taxation  is,  I 
think,  the  logical  tendency  of  the  protective  theory  of  the 
state  and  of  the  benefit  theory  of  taxation,  for  these  theories 
put  a  property  value  upon  the  protection  and  assume  that 
the  benefit  of  the  protection  is  proportional  to  the  property, 
or  revenue,  "  enjoyed  under  the  protection  of  the  state." 
At  the  same  time  the  conclusion  is  little  more  than  tauto- 
logical. If,  however,  we  assume  as  would  seem  to  be  quite 
as  true,  that  the  benefit  of  the  protection  has  a  proportion- 
ately greater  value  for  the  poor  than  for  the  rich,  relatively 
to  their   incomes,  regressive  taxation  would   be  the  logical 

*  For  a  careful  review  of  the  relation  of  tax  rates  to  the  basis  of  taxation,  see 
Seligman,  Progressive  Taxation. 

'  Exceptions  are,  in  the  main,  due  to  a  confusion,  or  to  an  unconscious  identi- 
fication of  the  ability  and  benefit  theories,  or  to  considering  the  tax  from  the  view- 
point of  income  instead  of  the  person. 


563]  ETHICAL  PRINCIPLES  OF  TAXATION  227 

consequence.'  If,  on  the  other  hand,  we  regard  the  benefits 
of  government  as  measured  by  the  subjective  sacrifice 
occasioned  by  the  loss  of  satisfactions  on  account  of  the  tax, 
progressive  taxation  would  seem  to  be  the  logical  result, 
since  the  intensity  of  the  unsatisfied  wants  would  decrease 
as  incomes  increase.  If  cost  of  service,  instead  of  value  of 
service  were  considered  as  the  basis  of  the  tax,  I  am  inclined 
to  believe  that  regressive  taxation  would  be  logically  de- 
manded.^  But  the  fact  is  that  the  benefit  theory  affords  no 
fixed  basis  for  determining  the  rate  of  taxation.  The  ad- 
vantages of  government  are  qualitative,  and  therefore,  as 
Professor  Seligman  says,  "  quantitatively  immeasurable."  3 

But  we  have  already  discarded  the  benefit  theory  of  taxa- 
tion, and  have,  therefore,  to  consider  proportional  rates  only 
in  their  bearing  upon  the  relative  "  ability "  of  taxpayers. 
The  question,  therefore,  is,  Is  ability  proportional  to  in- 
come? But  few  economists  of  note  answer  the  question  in 
the  affirmative.4  With  'those  who  do,  either  the  benefit 
theory  is  lurking  in  the  background,  or  else  ability  and  in- 
come (or  property)  are  assumed  to  be  equivalents  5 — income, 
not  the  person,  being  regarded  as  the  subject  of  the  tax. 
Marzano,  for  example,  writes :  "I  firmly  maintain  that  the 
proportional  tax  is  consonant  with  justice,  for  the  simple 
reason  that  the  contributive  faculty,  of  which  income  is  the 
concrete  and  actual  expression,  does  not  increase  otherwise, 
than   in   proportion"    {i.e.,io  income).^     This,  indeed,   is 

'  Cf.  Roscher,  op.  cit.,  p.  191;  Mill,  Polit.  Econ.,  v,  2,  §  2;  Parieu,  TraiU  des 
Impots,  i,  p.  87;    Menier,  op.  cit.,  p.  215. 

»  Cf.  Madam  Royer,  op.  cit.,  pp.  36-7.     Per  contra,  Sismondi,  op.  cit.,  p.  155. 

^Progressive  Taxation,  p.  85.  *  Cf.  Seligman.  ibid.,  pp.  150-3. 

'See,  for  example,  Parieu,  Traite  des  Impots,  vol.  i,  p.  134,  for  both  defects. 
The  same  errors,  1  think,  are  also  found  in  L6on  Say  and  Leroy-Beaulieu. 

*  Marzano,  Compendia  di  Scienza  delle  Finanze,"^.  122.  So,  likewise  Baer: 
"  II  criterio  per  giudicare  della  parita  delle  condizione,  o  di  loro  rapporto  in  piu  o 
meno,  non  puo  essere  altro  che  quello  dell'  importan.'^a  delle  sostanze,  dell'  avere, 
di  beni  che  si  posseggono."     Op.  cit.,  p.  19. 


228  JUSTICE  IN  TAXATION  [564 

really  the  only  logical  argument  for  a  proportional  tax,  from 
the  view-point  of  ability.  But  it  is  either  a  petitio  principii, 
or  it  is  tautological.  Income  and  ability  are  made  inter- 
changeable. No  consideration  is  given  to  the  personality  of 
the  taxpayer,  to  the  relation  between  income  and  wants. 

This  criticism  is  seemingly  forestalled  by  Marzano  in  the 
further  argument,  that,  since  the  demand  of  advancing 
civilization  increases  wants  in  the  same  proportion  that  in- 
come increases,  the  tax  should  be  proportional.'  By  impli- 
cation the  satisfaction  of  wants  measures  ability,  but  the 
wants  are  assumed  to  increase  proportionately  with  income, 
and  so,  also,  is  ability.  The  argument  is  specious,  but  not 
sound.  It  is  far  truer,  I  believe,  that  with  advancing  civiH- 
zation  wants  increase  at  a  more  rapid  rate  than  income  or 
wealth  increases.  Wants  increase  directly  with  education 
and  culture,  with  moral  and  spiritual  growth,  but  while  it  is 
true  that  the  development  of  these  is  very  largely  condi- 
tioned by  the  growth  of  wealth  (and  so  of  income),  it  is  not 
true  that  their  development  is  necessarily  directly  propor- 
tional to  the  growth  of  wealth.  Rather  do  they  develop 
progressively.  Hence,  wants  thus  viewed  in  their  relation 
to  income  would  seem  to  demand  regressive  rather  than 
proportional  taxation. 

But  if  by  "  wants"  Marzano  means  "  efficient  wants"  his 
argument  is  not  less  ineffective.  It  is  true,  in  that  case,  that 
the  power  of  satisfying  our  personal  wants  increases  propor- 
tionately with  income,  but  ability  is  not  merely  a  question 
of  the  relation  of  income  to  the  satisfaction  of  personal 
wants.  Ability  to  pay  taxes  has  reference  to  the  relative 
ability  to  satisfy  personal  and  collective  wants,  as  compared 
with  the  like  ability  of  others.  Because,  then,  if  there  were 
no  taxes  our  abihty  to  satisfy  our  increasing  personal  wants 
would  be  proportional  to  our  increasing  income,  it  does  not 

^  Cf.  Marzano,  pp.  124-5. 


565I  ETHICAL  PRINCIPLES  OF  TAXATION  229 

follow  that  our  ability  to  pay  taxes  maintains  the  same  pro- 
portion. For,  while  wants  increase  with  advancing  civiliza- 
tion, and  "  efficient  wants  "  with  increasing  income,  collective 
wants — the  demand  for  efficient  government — increase  in 
even  greater  proportion,  become  of  their  relatively  greater 
importance.  Hence,  from  this  point  of  view  the  tendency 
would  be  towards  a  progressive,  rather  than  a  proportional 
tax.  However,  the  question  of  ability  is  not  a  question  of 
increasing  wants  with  growth  in  civiHzation,  and  consequent 
increase  of  incomes,  but  whether,  under  existing  conditions, 
ability  increases  proportionately  with  income.  This  can  be 
maintained  only  by  the  first  argument  of  Marzano,  the  inval- 
idity of  which  we  have  pointed  out  above.  Besides,  though  our 
individual  wants  increase  with  the  increase  of  our  individual 
incomes,  or  our  wealth,  our  collective  wants  increase  in  an 
even  greater  ratio.  Or,  apart  from  the  question  of  the  value 
of  life,  which  may  be  assumed  to  be  the  same  for  all,  our 
wants,  deprived  of  satisfaction  on  account  of  the  tax,  become 
of  relatively  less  importance  as  our  wealth  increases,  as  com- 
pared with  the  wants  of  government.  Hence,  from  this 
view-point  the  relative  ability  of  large  and  small  incomes  is 
evident.  We  shall,  however,  consider  this  phase  of  the 
question  more  fully  in  connection  with  progressive  taxation. 

The  weakness  of  the  argument  for  proportional  taxation, 
as  a  logical  deduction  of  the  theory  of  ability,  is  brought  out 
very  clearly  in  the  fact  that  the  most  influential,  and  to  their 
advocates  the  most  decisive,  arguments  result  from  inconse- 
quential reasoning,  or  specters  of  the  imagination.  For  the 
most  part  these  arguments  take  the  form  of  objections  to  a 
progressive  tax;  on  the  ground  that  it  is,  "  inquisitorial,"  is 
"  robbery,"  is  "  socialistic,"  is  "  inhuman,"  is  "sentimental," 
is  "  arbitrary,"  etc.,  etc.  With  such  an  abandonment  of 
reason  argument  is  impossible. 

There  is,  however,  one  argument  that  perhaps  deserves 


230  JUSTICE  IN  TAXATION  [566 

more  consideration.  It  is  not  the  result  of  fright  at  a 
"  specter,"  but  is  nevertheless  a  clear  type  of  the  incon- 
sequences of  reasoning  by  a  complete  shifting  of  premises. 
I  refer  to  the  leave-them-as-you-find-them  argument  for  pro- 
portional taxation — noli  me  tangere.  This  is  one  of  the  most 
common,  and  has  been,  perhaps,  the  most  telling,  argument 
for  proportional  taxation,  but  it  has  nothing  whatever  to  do 
with  the  theory  of  ability.  If  the  argument  has  any  applica- 
tion at  all  it  is,  as  Neumann  says,  in  the  give-and-take  theory 
of  taxation,'  and  only  in  the  persistence  of  the  benefit  theory 
does  it  find  any  place  in  the  theory  of  ability.  The  argu- 
ment, too,  presumes  that  property,  not  income,  is  the  source 
of  the  tax,  and  is  closely  allied  with  the  economic  doctrine 
of  laissez-faire.  Moreover,  the  primary  premise  is  itself 
false.  Noli  me  tangere  is  no  more  a  function  of  government 
in  taxation  than  it  is  to  level  all  fortunes.  A  tax  necessarily 
affects  the  distribution  of  wealth  through  its  influence  upon 
the  savings  from  income,  and  the  cessation  of  taxes  (assum- 
ing that  government  would  still  exist)  would  favorably 
affect,  upon  the  whole,  the  accumulations  of  the  rich  more 
than  of  the  poor.  A  government,  then,  has  done  its  duty 
when  it  distributes  the  tax  according  to  the  ability  to  bear  it, 
although  it  incidentally  and  indirectly  affects  the  distribution 
of  wealth  even  though  this  end  is  not  directly  aimed  at.^'  Still, 
a  government  may  not  overlook  the  economic  effects  of  a 
tax,  for  when  these  become  ruinous  it  is  evidence  that  the 
tax  is  not  based  upon  ability  to  bear  it,  and  is  therefore 
unjust.3  But  proportional  taxes  may  affect  the  distribution 
of  wealth  in  the  same  manner  as  progressive  taxes,  though 
by  no  means  in  the  same  degree. 

Passing  over  these  irrelevant  arguments  for  proportional 
taxation,  the  question  whether  a  tax  proportional  to  income 

*  Neumann,  Die  Progressivsteuer,  p.  loi. 

»  Cf.  Neumann,  ibid.  '  See  chapter  iii. 


^%,^^''^>' 

567]  ETHICAL  PRINCIPLES  OF  TAXATION        "      231 

is  a  tax  proportional  to  ability  may  be  considered  from  two 
points  of  view — objectively  and  subjectively.  Objectively, 
it  is  a  question  of  the  relative  importance  of  public  and 
private  needs  satisfied  by  increasing  incomes  ;  subjectively,  it 
is  a  question  of  the  relative  sacrifice  endured  by  the  posses- 
sors of  large  and  small  incomes  through  the  payment  of  the 
tax.  In  the  former  case,  relative  ability  is  determined  by  the 
relative  importance,  objectively  considered,  of  the  needs 
unsatisfied  because  of  the  tax ;  in  the  latter  case,  relative 
ability  is  determined  by  the  subjective  intensity  of  the  same 
marginal,  unsatisfied  wants.  As  the  question  leads  at  once 
to  progressive  taxation,  it  will  be  considered  in  that  connec- 
tion. The  disproof  of  proportional  taxation  based  oa  ability 
is  the  proof  of  progression. 

(2)  Progressive  Taxation.  That  the  principle  of  taxation 
according  to  ability  leads  logically  and  inevitably  to  a  pro- 
gressive rate  is  recognized  by  most  economists  who  accept 
ability,  or  its  assumed  equivalent — equality  of  sacrifice — as 
the  just  basis  of  taxation.  Some,  however,  like  Mill  and 
Vocke,  accept  the  principle  of  progression  only  in  its  modi* 
fied  form  of  degression — a  proportional  rate  on  the  "clear" 
income.'  Others,  like  Seligman,  Pescatore  and  Walker, 
while  accepting  the  principle  of  progression  theoretically,  as 
the  only  logical  outcome  of  the  ability  basis  of  taxation, 
question  whether  it  can  be  justly  applied  in  practice  on 
account  of  the  practical  difficulties  in  the  way  of  its  execu- 
tion.^ 

Upon  what,  then,  does  this  consensus  of  opinion  rest?  In 
brief,  upon  the  conviction  that  ability  to  pay  taxes  increases 
faster  than  income  increases.  But  what  is  the  ground  of  this 
conviction,  if  it  is  anything  more  than  a  mere  sentiment,  or  an 

^  Mill,  Polit.  Econ.,  v,  2,  3;  Vocke,  op.  cit.,  pp.  472-9. 

*  St\\gxad.x\,  Progressive  Taxaiion,^.  199;   Pescatore,  Za  Logica  delle  Impost, 
pp.  23-5 ;   Walker,  Political  ^Economy,  p.  500. 


232  JUSTICE  IN  TAXATION  [568 

ipse  dixit  ?  It  rests  upon  both  objective  and  subjective  con- 
siderations.    Let  us  note  the  latter  first. 

Subjectively,  then,  a  tax  is  assumed  to  be  proportioned  to 
ability  when  it  effects  an  equality — "equivalence" — of  sacri- 
fice ;  when  the  holder  of  a  small  income  feels  the  sacrifice 
occasioned  by  his  tax  just  as  much,  but  no  more,  than  the 
holder  of  a  large  income  feels  the  sacrifice  occasioned  by  his 
tax.  But,  so  it  is  maintained,  such  an  "  equality  of  sacri- 
fice "  is  not  obtained  by  the  giving  up  of  proportional  parts 
of  incomes  of  different  sizes.  For,  in  satisfying  our  wants 
the  most  intensive  wants  are  always  the  first  to  be  satisfied, 
and  with  increasing  incomes  wants  will  be  satisfied  of  ever 
decreasing  intensity  ;  so  that  the  marginal  utility  of  the  want 
satisfied  with  the  last  increment  of  a  large  income  has  a  less 
intensity  than  the  marginal  utility  of  the  want  satisfied  with 
the  last  increment  of  a  small  income.  Or,  what  amounts  to 
the  same  thing,  the  wants  sacrificed  on  account  of  the  tax  are 
always  the  least  intensive  wants,  but  the  marginal  wants  sacri- 
ficed on  account  of  the  tax  increase  in  intensity  as  incomes 
decrease  in  size — the  obverse  of  the  fact  that  with  increasing 
incomes  wants  of  decreasing  intensity  are  satisfied.  Hence, 
the  taking  of  proportional  parts  of  unequal  incomes  neces- 
sarily does  not  effect  a  proportional  sacrifice.  Therefore,  a 
progressive  rate  is  essential  to  realize  a  true  proportion,  the 
rate  gradually  increasing  as  incomes  increase. 

As  put  by  Meyer  the  argument  is,  that  "  the  proportional 
tax  (Der  gleiche  Steuerbetrag)  occasions  a  so  much  larger 
sacrifice  the  smaller  the  income  from  which  it  is  borne, 
because  the  smaller  the  income  the  more  intensive  are  the 
needs  which  are  deprived  of  the  means  of  satisfaction,  and 
the  average  intensity  of  the  needs  attaining  satisfaction  is 
put  off  to  an  ever  greater  distance." '     Hence  to  equalize 

*  Meyer,  op.  cit.,  p.  331.     Meyer  advances  another  argument  for  progressive 
taxation  that  is  closely  allied  with  his  argument  for  diSerential  rates  on  funded 


569]  ETHICAL  PRINCIPLES  OF  TAXATION  233 

the  intensities  there  must  be  a  progressive  rate.  So,  Hke- 
wise,  it  is  held  by  Wagner:  "That  it  is  statistically  probable 
that  ability  increases  faster  than  income,  because  with  in- 
creasing income  there  is  an  ever  larger  quota  of  free  income 
left  over,  which  is  not  held  for  the  satisfaction  of  subsistence 
needs,  therefore  for  needs  satisfied  with  much  greater  diffi- 
culty," '  larger  portions  of  small  incomes  and  smaller  portions 
of  large  incomes  being  used  to  provide  for  the  necessities — 
food,  clothing,  shelter.  Hence  the  necessity  of  a  progressive 
rate.  So,  too,  Neumann  reaches  the  same  conclusion  from  a 
slightly  different  point  of  view.  In  the  first  place  ability  is 
identified  with  sacrifice,  since,  like  sacrifice,  it  increases 
either  as  one  imposes  labor  upon  himself  or  as  he  denies 
himself  enjoyments  and  satisfactions — "the  sacrifice  of  toil 
and  of  renunciation."  ^^  Such  sacrifices  are  imposed  by 
taxes.  Nevertheless,  ability  to  pay  taxes  is  not  propor- 
tioned to  income,  as  there  are  other  sacrifices  that  must  be 
taken  into  consideration — expenses  for  food,  clothing,  cul- 
ture, care  and  support  of  the  family,  etc.,  etc.  These  latter 
sacrifices  increase  progressively  as  incomes  decrease. 
Hence,  a  progressive  rate  with  increasing  incomes  is  neces- 
sary in  order  that  the  tax  may  "  occasion  equal  efforts  and 
sacrifices  over  against  other  needs."  ^ 

In  spite  of  the  weight  of  authority  in  its  behalf  and  the 
dictum  of  Neumann,  "  that  it  is  only  through  a  consideration 
of  the  sacrifice  imposed  that  the  measure  of  ability  first  con- 
tains definite  form  and   becomes  useful  for  a  tax  system,"  * 

incomes.  It  is,  that  with  larger  incomes  there  is  greater  power  of  accumulation  of 
property;  that,  therefore,  they  should  be  taxed  more  highly,  the  property  adding 
to  the  ability  as  in  the  case  of  funded  property.  The  argument  contains  the  same 
fallacy  as  that  for  a  differential  rate  on  funded  incomes.  {Anie,  pp.  213-216.) 
Or,  if  it  be  presumed  that  the  accumulation  of  a  large  property  increases  the 
income,  the  argument  is  not  to  the  point. 

1  Wagner,  op.  cit.,  p.  457. 

*  Die  Progressive  Eitikommensteuer,  p.  62.         *  Ibid.,  p.  63.         *  Ibid.,  p.  62, 


234  JUSTICE  IN  TAXATION  [570 

the  sacrifice  theory  of  progression  is  not  to  us,  we  confess, 
altogether  convincing.  Indeed,  the  argument  appears  to  be 
a  non  sequitur.  Because  we  satisfy  our  wants  in  the  order 
of  their  decreasing  intensity,  or  with  large  incomes  satisfy 
less  intensive  wants  than  with  small  incomes,  and  in  the  case 
of  a  tax  sacrifice  the  least  intensive  of  our  wants,  it  does  not 
follow  that  proportional  parts  of  incomes  of  different  sizes 
will  not  effect  equivalent  sacrifices ;  that,  for  example,  a  3 
per  cent,  tax  on  A's  income  of  $10,000  is  not  felt  by  him 
exactly  the  same  as  a  3  per  cent,  tax  on  B's  income  of 
$i,coo  is  felt  by  him.  If  the  income  of  A  were  suddenly 
reduced  from  $10,000  to  $1,000  and  the  income  of  B  raised 
from  $1,000  to  $10,000,  then  A  would  feel  a  3  per  cent,  tax 
on  $1,000  proportionately  more,  and  B  a  3  per  cent,  tax  on 
$10,000  proportionately  less  than  they  felt  the  3  per  cent, 
tax  on  their  former  incomes.  But  this  does  not  follow  when 
the  state  of  mind  of  A  is  compared  with  that  of  B,  for  what 
is  to  A  a  necessity  is  to  B  a  luxury.  Really,  comparison 
between  them  is  impossible. 

Above  all  is  our  contention  true  if,  with  Mill  and  Vocke, 
we  exempt  the  necessities — the  minimum  of  subsistence — 
and  apply  the  rate  only  to  the  clear  income ;  an  exemption, 
as  we  shall  show  later,  is  the  logical  consequence  of  the 
ability  theory.  Moreover,  necessities  are  in  a  class  by  them- 
selves. Comparison  between  them  and  other  wants  is  on 
a  par  with  a  comparison  between  the  indefinite  and  the 
definite,  or  in  their  extremes,  between  the  infinite  and  the 
infinitesimal.'  Apart,  then,  from  the  question,  whether  the 
ideal  aim  of  taxation  is  the  production  of  equivalent  in- 
tensities of  feeling  on  account  of  the  tax  (a  somewhat  ques- 
tionable ideal),  there  can  be  no  subjective  proof  of  the 
realization  of  this  equivalence.  Subjectively,  we  cannot  tell 
whether  it  would  be  attained  by  a  proportional,  a  progres- 

*  Cf.  Sax,  Die  Frogressivsteuer,  p.  85. 


5/1  ]  ETHICAL  PRINCIPLES  OF  TAXATION  235 

sive,  or  a  degressive  rate.  We  are  dealing  with  the  "  quan- 
titatively immeasurable." 

In  spite  of  this  difficulty  both  Wagner  and  Neumann, 
while  accepting  ability  as  the  true  basis  of  taxation,  find 
their  proof  for  progression  only  by  interpreting  ability  in 
tei-ms  of  subjective  sacrifice.  On  the  other  hand,  Meyer, 
who  makes  sacrifice  the  basis  of  the  tax,  determines  the  rate 
(which  he  finds  should  be  progressive)  by  interpreting  the 
sacrifice  in  terms  of  objective  economic  conditions  —  of 
objective  ability.  So,  likewise,  Sax  declares  that  no  definite 
results  can  be  attained  by  the  sacrifice  theory,  as  all  we  can 
say  of  feelings  is  that  one  is  greater  or  less  than  another, 
but  not  how  much  greater  or  less.'  But  Sax  does  not  him- 
self escape  the  difficulty  as  easily  as  he  imagines.  He 
prides  himself,  as  we  have  seen,  upon  escaping  the  dilemmas 
of  the  sacrifice  theory  (and  also  of  the  ability  theory)  by  his 
theory  of  marginal  utility,  applicable  alike  to  collective  and 
to  private  wants.  From  the  fact  that  as  incomes  increase 
there  is  both  a  decreasing  utility — a  decreasing  intensiveness 
— in  the  wants  satisfied,  and  at  the  same  time  an  increasing 
utility,  with  respect  to  their  extensiveness,  it  is  concluded 
that  finally  the  extensiveness  of  the  utilities  becomes  so 
great  that  their  decreasing  intensiveness  is  practically  in 
inverse  proportion  to  the  increase  of  income ;  and  that,  but 
for  their  extensiveness  it  would  be  more  than  an  inverse 
proportion.^  But  in  changing  from  the  conception  of  sacri- 
fice to  that  of  marginal  utilities,  Sax  has  not  changed  the 
principle  in  the  least.  He  is  still  dealing  with  subjective 
states  of  feeling.  These  marginal  utilities  are  precisely  what 
the  sacrifice  consists  of.  To  effect  an  "equivalence"  of 
these  utilities — these  subjective  feelings — is  not  a  whit  differ- 
ent from  effecting  an  "  equivalence"  of  sacrifice. 

Hence,  in  the  determination  of  the  question  of  rates,  the 

'  Cf.  Sax,  Die  Prop-essivsteuer,  p.  83.  '  Sax,  ibid.,  p.  86. 


236  JUSTICE  IN  TAXATION  [572 

theory  of  Sax  has  to  meet  with  practically  the  same  diffi- 
culties that  are  to  be  met  with  in  the  sacrifice  theory,  and  he 
solves  the  problem  exactly  as  Meyer  solved  it — by  an  appeal 
to  objective  standards,  to  the  general  agreement  among 
men,  and  to  the  observation  of  the  effects  of  feelings  in 
economic  exchange.'  True,  the  objective  conditions  are 
supposed  to  be  the  expression  of  the  subjective  feelings,  or 
subjective  feelings  to  be  induced  by  objective  conditions ;  so 
that  in  determining  the  tax  rate  the  government  has  but  to 
observe  the  effect  upon  feelings  of  objective  conditions  and 
relations,  and  then  so  arrange  the  rate  that  these  relations 
will  produce  the  desired  subjective  efTect — equivalence  of 
feelings  =  equivalence  of  sacrifice. 

But  with  all  of  the  "  observation  "  of  the  effect  of  feelings 
upon  economic  exchange,  no  government  can  tell  whether  a 
tax  proportional  to  income  will  produce  equivalent  feelings ; 
not  only  for  the  reason  already  given,  to  wit:  that  the  fact 
that  with  increasing  incomes  the  marginal  utilities  satisfied 
are  of  constantly  decreasing  intensity — of  constantly  de- 
creasing utility — is  no  proof  that  the  loss  of  a  portion  of 
these  utilities  to  A,  with  a  large  income,  would  not  be  the 
same  to  him  as  the  loss  of  the  same  proportion  would  be  to 
B,  with  a  small  income  ;  but  also  from  the  fact,  as  well  pointed 
out  by  Sax,  that  we  must  take  account  of  the  extensiveness 
as  well  as  the  intensiveness  of  the  marginal  utilities  sacrificed. 
Even  if  a  "  more  or  less  "  could  be  determined,  the  theory 
affords  no  way  of  determining  how  much  more  or  less,  or 
the  rate  of  the  progression  ;  for  I  cannot  agree  that  collective 
wants  are  determined  in  exactly  the  same  way  as  are  the 
private  wants.'^ 

It  has  remained  for  the  Dutch  economists,  firmly  adhering 
to  the  sacrifice  theory,  and  to  progression  as  its  logical  con- 

*  Sax,  Die  Progressivsteuer,  p.  85. 

*  CJ.  Neumann,  Die  Steuern  und  das  offentliche  Inter  esse,  pp.  190-200. 


573]  ETHICAL  PRINCIPLES  OF  TAXATION  237 

sequence,  to  reduce  the  rate  of  progression  to  a  fixed  rule 

to  a  mathematical  formula— but  their  scientific  exactness  is 
purely  an  affair  of  the  imagination.     As  we  have  seen,  they 
attempt  to  solve  the  problem  by  the  ingenious  but  deceptive 
device  of  taking  two  series  of  numbers  and  assuming  that 
they  correspond  respectively  to  the  decreasing  utility  of  in- 
creasing increments  of   income,  and  the  decreasing  utility  of 
increasing  increments  of  the  tax,  such  as  would  result  from 
proportional  taxation.     This,  it  is  assumed,  would  show  an 
unequal,  or  a  disproportionate,  sacrifice.     All  that  there  is 
to  do  then  is  to  so  change  the  series  as  to  produce  a  rate 
that  will  equalize  the  marginal  utilities  of  the  tax  on  differ- 
ent incomes,  or  equalize  the  sacrifice  occasioned  by  the  tax. 
But  as  there  is  absolutely  no  reason  for  choosing  one  series 
rather   than   another,   any  result,   any  rate   of   taxation,   is 
theoretically  possible  according  to  this  theory.    This  Cohen- 
Steuart   admits,   but  .his   own  attempted   refinement  of  the 
theory  by  assuming  that  the  truth  lies  in  the  mean  between 
two  extremes,  is,  as  both  Professors  Sax  and  Seligman  have 
shown,'   equally    groundless,   equally    imaginary.     It  is   all 
guess  work,  all  groundless  hypothesis.     Hence  the  rule  for 
progression  :   "  Arithmetical  increase  of  the  rate  with  geomet- 
rical increase  of  the  income  up  to  a  definite  point  when  pro- 
gression is  replaced  by  proportion,"  »  is  purely  chimerical, 
and  therefore  wholly  without  value. 

Upon  the  whole,  then,  the  sacrifice  principle  does  not 
appear  to  throw  much  light  upon  the  theory  of  rates.  In- 
evitably appeal  must  be  made  to  objective  standards,  to  ob- 
jective economic  conditions  and  relations.  Even  if  "  equiv- 
alence of  feeling  "  is  the  ideal  of  justice  in  taxation,  it  is  a 
purely  abstract  ideal.     A  government  has  fulfilled  its  obliga- 

'  Sax,  Die   ProgressivsUuer,  p.  59  et  seq.;  Seligman.  Progressive    Taxation, 
pp.  184-5. 

*  Quoted  from  Seligman,  Ibid.,  p.  188. 


238  JUSTICE  IN  TAXATION  [574 

tions  in  the  just  distribution  of  the  tax  burden  when  it  has 
proportioned  the  tax  according  to   the  abiHty  of  the  tax- 
payer, as  this  abiHty  is  determined  by  objective  facts,  objec- 
tive economic  conditions  of  the  taxpayers.     We  may  grant 
that  such  a  tax  may,  and  in  a  very  general  way  will,  produce 
an  equivalence  of  subjective  feelings.     But  the  fact  remains 
that  the  point  of  view  of  the  government  is  that  of  relative 
objective  ability;  that  is,  ability  as  determined  by  the  econ- 
omic means  for  the  satisfaction  of  public  and  private  needs, 
their    relative    importance    being  taken   into   consideration. 
Such  a  conception  of  ability  and  our  obligation  to  pay  taxes 
is  founded  upon  the  nature  of  the  state.     It  is,  as  we  have 
seen,  of  a  distinctively  ethical  connotation.     This  granted, 
What  rate  of    taxation    follows   as  a  logical    consequence? 
That  is,  A  and  B  having  incomes  of  different  sizes,  what 
portions  of  their  incomes  ought  each  to  contribute  to  the 
support  of  the  state,  on  which  their  social  and  civilized  ex- 
istence depends?     If  A  has  ten  times  the  income  of  B,  ought 
he  to  contribute  ten  times  as  much?     Is  his  ability  ten  times 
as  great?     To  me  the  question  is  essentially,  at  least  funda- 
mentally, ethical.     But  it  is  a  question  of  practical  ethics. 
It  involves,  nay  it  cannot  escape,  consideration  of  the  rela- 
\  tive  economic  conditions  of  A  and  B ;   nor,  again,  the  effect 
J  of  a  tax  upon  their  relative  economic  conditions.     Imme- 
/  diately  the  problem  has  an  objective  reference  ;   ultimately,  a 
subjective   reference.     That   is   to  say,  immediately  it  is  a 
question  of  the  true  relation  between  economic  means  and 
objective  economic  conditions ;   while  ultimately  it  is  a  ques- 
tion of  the  relative  importance,  or   character,  of  the  wants 
satisfied  by  the  economic  means,  or  the  relative  importance 
of   the    needs   of   which    the   economic   conditions   are    the 
expression.     Immediately  and  objectively  it  has  to  do  with 
economic   conditions ;   ultimately  and  subjectively  with  the 
importance  of  these  relations  in  their  bearing  upon  the  pur- 


575]  ETHICAL  PRINCIPLES  OF  TAXATION  239 

poses  of  life.  A  government,  however,  must  find  its  rules 
for  guidance  in  the  objective  conditions,  in  accordance  with 
a  standard  that  represents  the  consensus  of  opinion  as 
moulded  by  the  moral  sense  of  mankind ;  by  the  habit, 
customs,  and  ideals  as  reflected  in  social  institutions;  by  the 
degree  of  culture  and  civilization  attained  and  by  the  econ- 
omic status  of  the  society  in  question. 

Now  by  common  consent  wants  are  divided,  in  a  very 
general  way,  into  necessities,  comforts  and  luxuries,  and  by 
common  observation  we  learn  that  there  is  a  certain  corres- 
pondence between  the  satisfaction  of  each  of  these  grades  of 
wants  and  the  amount  of  disposable  income ;  or,  that  with 
different  amounts  of  income  we  provide  ourselves  with  dif- 
ferent classes  of  economic  goods,  and  thereby  with  the  cor- 
respondingly different  grades  of  enjoyment,  of  which  the 
economic  goods  afford  the  means.  By  common  consent, 
too,  the  necessities  are  deemed  of  the  most,  the  luxuries  of 
the  least  relative  importance,  not  alone  from  the  viewpoint 
of  the  subjective  value  to  the  individual,  but  also  from  the 
viewpoint  of  the  progress  and  development  of  mankind. 
The  comforts  stand  between  the  two.  Therefore,  the  exten- 
sion of  the  scope  of  the  necessities  is  of  more  importance 
than  the  extension  of  the  comforts,  while  the  extension  of 
the  latter  is  of  more  importance  than  the  extension  of  the 
luxuries,  and  this  importance  could  be  shown  to  extend 
both  to  our  economic  and  our  spiritual  well-being.  Hence, 
considered  from  the  viewpoint  of  the  realization  of  the  ends 
of  man,  in  which  is  found  the  ultimate  end  of  the  state,  it  is 
of  more  importance  that  those  who  are  confined  to  the 
necessities  of  life  extend  the  scope  of  their  satisfactions, 
than  that  those  who  enjoy  the  luxuries  should  extend  theirs. 

At  the  same  time  it  must  be  admitted  that  the  comforts 
and  luxuries  are  as  positive  factors  in  human  development 
as  are  the  necessities.     Indeed,  in  a  sense  they  are  much 


240  JUSTICE  IN  TAXATION  [576 

more  significant.  Necessities,  when  confined  to  absolute 
necessities,  are  a  pre-condition  to  any  development.  De- 
velopment begins  only  when  the  stage  of  necessities  is 
passed,  when  the  stage  of  comforts,  or  of  "culture"  begins. 
And  progress  is  marked  by  the  gradual  merging  of  comforts 
into  culture  necessities,  and  the  conversion  into  luxuries  of 
what  has  been  regarded  as  superfluous.  But  the  order  of 
their  importance  remains  unchanged.  From  the  ethical 
standpoint,  both  of  man  and  of  the  state,  it  would  seem,  then, 
to  be  a  logical  deduction,  that  the  deprivation  of  a  portion 
of  the  luxuries  would  be  of  relatively  less  importance  than 
the  deprivation  of  a  similar  portion  of  comforts,  and,  still 
more,  than  that  of  necessities.  Or,  what  amounts  to  the 
same  thing,  it  is  of  more  importance  that  there  should  be  the 
means  of  satisfying  the  latter  than  either  of  the  former. 

Briefly,  then,  we  are  forced  to  the  conclusion  that  ethically 
considered,  that  is,  from  the  viewpoint  of  the  ethical  con- 
ception of  man  and  of  the  state,  wants  of  relatively  decreas- 
ing importance  are  satisfied  with  increasing  incomes,  so  that 
the  taking  away  of  a  part  of  a  small  income  (as  by  a  tax) 
necessitates  the  giving  up  of  wants  of  relatively  greater  im- 
portance than  would  the  taking  away  of  equivalent  parts  of 
large  incomes.  In  other  words,  considered  with  respect  to 
the  importance  of  wants  there  is  proportionately  more  dis- 
posable for  taxes  in  large,  than  in  small,  incomes — propor- 
tionately greater  ability.  But  there  is  no  difiference  in  the 
importance  of  the  state  to  the  person,  as  such.  The  dififer- 
ence of  interest  is  indistinguishable.  Yet  regarded  from  the 
point  of  view  of  the  totality  of  satisfactions,  and,  therefore, 
of  the  means  of  these  satisfactions,  the  importance  of  the 
state  to  the  individual  would  seem  to  increase  with  the  in- 
crease of  income ;  and  because  of  the  indispensableness  of 
the  state  to  this  increase  of  income,  its  importance  might 
well  be   regarded  as  increasing  in  greater  proportion  than 


577]  ETHICAL  PRINCIPLES  OF  TAXATION  24 1 

the  increase  of  income.  Hence,  also,  the  obligation  for  a 
more  than  proportionate  share  of  the  tax  burden  as  meas- 
ured by  income.  But  this  view  merges  into  the  benefit 
theory ;  it  does  not  directly  determine  ability,  or  the  obliga- 
tion resting  upon  it.  Confining  ourselves,  then,  to  the  view 
of  the  equal  importance  of  the  state,  the  above  argument 
leads  inevitably  to  the  conclusion  that  ability  increases  in  a 
greater  ratio  than  income,  thus  necessitating  a  higher  rate 
on  large  than  on  small  incomes  in  order  that  the  tax  may 
be  proportional  to  ability.  In  brief,  a  progressive  rate  on 
increasing  incomes  is  essential  to  a  proportional  tax  on 
ability,  if  by  ability  is  understood  the  relative  satisfaction  of 
wants  with  respect  to  their  importance. 

This  view  of  progression  is  not,  I  think,  altogether  dif- 
ferent from  that  of  SchafBe,  who  conceives  of  ability  as 
determined  by  the  amount  which  one  can  contribute  in 
taxes  without  crippling  the  same  relative  support  of  himself; 
and  who  concludes  that  this  principle  leads  to  progression, 
on  the  ground  that  as  incomes  increase  in  size  relatively 
larger  portions  may  be  contributed  to  the  state  without 
detriment  to  a  relative  satisfaction  of  personal  wants.  But 
Schaffle  also  thinks  that  the  idea  of  progression  is  itself 
"instinctively  correct,"  "it  being  only  the  manner  of  carry- 
ing it  out  that  is  false  in  the  theory  of  progressive  taxation."' 
This  is  specially  true  if  we  give  emphasis  to  the  difference 
in  the  importance  of  wants,  which  appears  to  be  implied  in 
the  theory  of  Schafifle.  It  is  questionable  if  based  on  the 
sacrifice  theory.  But  progression  is  "instinctively  correct" 
only  because  it  is  based  upon  ideas  that  conform  to  the 
common  judgment  of  mankind,  with  respect  to  the  relativity 
of  wants  and  their  comparative  importance  to  individual  and 
social  well-being. 

That  there  is  an  indefiniteness  in  this  theory  of  progres- 

*  Schaffle,  Mensch  und  Gut,  p.  49.     C/.  also,  Die  Grutidsatze,  p.  23. 


242  JUSTICE  IN  TAXATION  [578 

sion,  and  that  it  affords  no  definite  ratio,  or  rate,  of  pro- 
gression, is  not  to  be  denied.'  But  this  is  inevitable  in  any 
theory  of  progression,  and  it  does  not  prove  that  the  prin- 
ciple itself  is  not  correct.  It  has,  at  least,  the  merit  of  con- 
forming to  the  sound  principle  of  Vocke  (though  differently 
applied  by  him),  that  the  principle  of  progression  must 
proceed  from  its  own  fundamental  thought,'^  which  we  take 
to  be  the  principle  of  relative  ability  as  determined  by  in- 
come and  by  the  relative  importance  of  wants. 

But  though  vague  and  indefinite,  must  it  be  admitted  that 
this  theory  of  progression  affords  absolutely  no  principle  for 
determining  the  rate  and  the  limit  of  the  progression?  We 
think  not.  Vocke  solves  this  question  easily  by  assuming 
that  the  "fundamental  thought"  is  the  primary  right  to  the 
needs  of  subsistence,  and  therefore  the  right  to  the  exemp- 
tion of  the  minimum  of  subsistence,  by  which  both  the  rate 
and  its  limit  is  fixed  by  the  amount  of  the  exemption,  the 
only  indefiniteness  being  in  the  amount  of  the  exemption. 
That  is,  the  limit  of  progression  is  dcgression.3  The  diffi- 
culty with  this  view,  as  it  appears  to  me,  is  this:  What 
Vocke  considers  to  be  the  "  fundamental  thought "  of  pro- 
gression— that  is,  of  the  principle  of  equality — is  in  reality, 
the  fundamental  thought  of  exemption — that  is,  of  the  prin- 
ciple of  universality.  The  degressive  principle  is,  indeed, 
incidental  to  exemption,  but  it  has  no  direct  bearing  upon 
the  question  of  progression,  except  upon  the  questionable 
assumption  that  ability  is  proportional  to  "  clear"  income. 

Schaffle,  without  reference  to  any  "fundamental  thought" 
of  progression,  but  upon  mere  grounds  of  policy,  would 
have  the  rate  and  limit  of  the  progression  indirectly  deter- 

^  See  Seligman,  Progressive  Taxatiou,  for  criticism  of  Schaffle. 
*  See  Vocke,  op.  cit.,  p.  477. 
'  Vocke,  ibid.,  pp.  477-9. 


579]  ETHICAL  PRINCIPLES  OF  TAXATION  243 

mined  by  the  taxpayers  themselves,  through  a  tax  upon 
consumption.'  But  this  would  be  very  uncertain  in  its 
effects  on  account  of  the  shifting  and  incidence  of  taxes. 
Still,  we  may  admit  that  the  tendency  of  such  a  system 
would  be  to  impose  the  tax  "according  to  one's  dynamic 
ability;"  also  to  tax  the  "  economic  personality,"  and  at  the 
same  time  put  a  limit  upon  the  progression.^  So  likewise, 
Held  would  also  indirectly  attain  the  same  result  by  impos- 
ing taxes  so  that  they  will  occasion  the  least  complaint,  this 
complaint  being  considered  as  the  best  index,  or  measure, 
of  sacrifice,  or  ability.^  This  view  has  much  in  common 
with  the  theory  of  Sax,  already  sufficiently  discussed,  that 
the  "equivalence"  of  the  burden,  and  therefore,  also,  the 
just  tax  rate,  is  determined  by  the  people  through  their 
representatives  in  the  government. 

But  while  these  views  contain  much  truth,  I  believe  that 
we  can  find  in  the  principle  of  progression  rules  that  deter- 
mine and  limit  its  rate.  Theoretically,  if  the  principle  of 
progression  is  based  upon  comparative  ability,  as  we  have 
understood  it,  there  must  be  the  same  relative  means  of 
satisfying  wants,  according  to  their  importance,  after  as  be- 
fore the  tax.  This  is  a  mere  truism.  But  it  follows,  also, 
that  there  should  be  the  same  relative  ability  to  exercise 
one's  faculties,  to  the  end  of  larger  satisfactions,  as  existed 
prior  to  the  tax.  Otherwise  progressive  human  develop- 
ment will  be  checked,  and  the  purpose  for  which  the  state 
exists  be  negatived.  Nor  is  this  mere  abstract  theory.  The 
same  objective  signs,  by  which  the  principle  of  progression 
is  objectively  determined,  will  aid,  also,  in  determining  the 
rate  and  limit  of  the  progression — the  effects  of  a  tax  upon 
the  relative  economic  means  of  satisfaction.     Above  all  is 

*  Schaifle,  Mensch  und  Gut,  pp.  168-9.  ^  Ibid.,  p.  168. 

*  Einkommensteuer,  p.  115. 


244  JUSTICE  IN  TAXATION  [580 

the  limit  reached  when  the  rate  is  such  as  to  prevent  that 
'  saving'  that  provides  for  future  production."  ' 

That  this  whole  view  of  progression — of  equality  in  taxa- 
tion— is  vague  and  arbitrary,  must  again  be  admitted.  But 
so  is  every  other  theory  of  progression.  Here  everything 
depends  upon  the  determination  of  the  relative  importance 
of  needs,  which  is  a  purely  relative  conception.  But  it  must 
be  borne  in  mind  that  our  viewpoint  is  ethical — the  ethical 
ideal  in  taxation.  Nevertheless,  this  conception  of  progres- 
sion is  not  altogether  impracticable.  It  is  capable  of  prac- 
tical application  within  certain  limits,  and,  therefore,  of 
realizing  an  approximation  to  justice,  which  is  all  that  any 
theory  of  progression  can  claim.  And  the  higher  the  moral 
standard  of  mankind  the  more  nearly  will  the  approximation 
attain  to  the  ideal. 

But  in  spite  of  the  justice  of  the  principle  of  progression, 
there  are  practical  objections  of  another  character  that  de- 
serve, perhaps,  some  consideration.  That  progressive  tax- 
ation would  prevent  the  growth  of  capital,  or  cause  it  to 
emigrate,  is  true  only  if  the  rate  of  progression  be  excessive. 
It  would  not  follow  moderation,  or  a  wise  conservatism,  in 
the  application  of  the  principle.  This  is  attested  by  the 
results  of  its  practical  application  in  Switzerland,  Saxony,  or 
wherever  else  applied.  The  same  is  true  of  the  objection 
that,  logically  carried  out,  a  progressive  tax  would  confiscate 
wealth  and  equalize  fortunes.  Besides,  logically  carried  out 
progressive  taxation  does  not  lead  to  confiscation.  Progres- 
sion may  lead  to  infinity,  but  progressive  taxation  is  limited 
in  its  application  by  the  principle  by  which  it  is  itself  deter- 
mined, as  we  have  already  seen.  Hence,  Wagner's  social- 
political  theory  of  progressive  taxation  is  in  direct  conflict 
with  his  theory  of  taxation  according  to  ability.     Again,  that 

'  The  theory  that  a  progressive  tax  necessarily  prevents  "  saving  "  is  based  upon 
the  erroneous  assumption  that  what  is  paid  as  a  tax  would  otherwise  be  "  saved." 


58 1 ]  ETHICAL  PRINCIPLES  OF  TAXATION  245 

progressive  taxation  would  stimulate  money  lenders  to  en- 
courage the  increase  of  public  debts  is  no  truer  than  in  the 
case  of  proportional  taxation.'  Nor  would  it  necessarily 
imply  undue  interference  with  personal  rights  and  liberties. 
This  results  more  from  the  kind  than  from  the  rate  of 
taxation. 

Upon  the  whole,  then,  I  believe  that  if  progression  is  just 
in  principle  it  should  be  applied  in  practice  ;  but  moderately 
applied.  Even  a  conservative  attempt  to  realize  a  principle 
of  justice  that  is  felt  to  be  "instinctively  correct"  would  go 
far  towards  mitigating  the  social  discontent  of  the  masses, 
and  would  tend  to  their  rise  by  peaceful,  instead  of  by 
revolutionary,  methods.  Or,  as  Held  says:  progressive 
taxation  **  is  a  social  need  and  a  means  of  peaceful  pro- 
gress."' "A  social  need,"  I  take  it,  in  the  sense  that  I  have 
understood  the  principle  of  progression,  as  largely  con- 
ditioned by  the  relative  importance  of  the  intellectual  and 
social  development  of  the  poorer  classes,  upon  which  in 
great  measure  depends  the  progressive  development  of  man- 
kind;" peaceful  progress,"  since  every  recognition  of  justice 
towards  the  masses,  on  the  part  of  the  government,  tends  to 
kill  the  revolutionary  impulse. 

"If  that  organization  of  society  and  political  life  which  we 
call  aristocratic  in  the  best  sense  of  the  term,"  says  Cohn, 
"is  to  survive  (and  it  is  indispensable  for  the  progress  of 
civilization  that  it  should  survive),  the  corresponding  aristo- 
cratic attitude  of  the  upper  classes  must  come  up  to  the 
demand  made  upon  it.  They  will,  among  other  things,  have 
to  fulfil  this  requirement  also  in  the  way  of  accepting  an 
adequately  developed  system  of  taxation.  Their  degree  of 
readiness  will  make  up  in  quality  for  what  the  democratic 
masses  would  otherwise  demand,  some  day,  in  quantity. 
The  voluntary  acceptance  of  an  increasing  burden  will  serve 

*  Cf.  Adams,  Public  Debts,  pp.  39-41.  'Held,  op.  cit.,  p.  172. 


246  JUSTICE  IN  TAXATION  [582 

to  strengthen  their  traditional  influence  and  is  indispensable 
to  the  best  civilization,  as  well  as  to  the  existence  of  the 
higher  classes  themselves.  On  the  other  hand,  the  more  an 
increasing  progression  comes  as  the  result  of  the  importunate 
demands  of  a  discontented  populace,  the  more  reckless  will 
it  be,  both  in  the  new  demands  which  it  embodies  and  in  its 
changes  of  the  old  order  of  things."'  In  brief,  if  the  prac- 
tice of  progression  by  those  upon  whom  it  would  apply 
creates  a  possible  danger,  it  averts  the  possibility  of  a  far 
greater  danger. 

II.  The  Principle  of  Universality 
That  the  principle  of  "  universality,"  like  the  principle  of 
"  equality,"  follows  from  the  nature  of  the  state,  the  nature 
of  the  individual,  and  from  the  relation  of  the  individual  to 
the  state,  we  have  already  seen.  Thus  viewed  there  would 
seem  to  be  no  ground  for  any  exception  to  the  rule.  Uni- 
versality would  seem  to  be  an  unconditional  principle  of 
taxation.  This,  in  fact,  is  the  view  of  most  writers  on  the 
theory  of  taxation.  It  is  the  common  idea  that  because  of 
the  indispensableness  of  the  state  to  the  individual,  the 
universality  of  interest  in  the  state,  there  is  no  exception,  in 
principle,  to  the  obligation  to  contribute  to  the  state's  sup- 
port. If  exception  is  allowed,  it  can  be  only  upon  the 
ground  of  absolute  necessity — the  non-existence  of  means 
above  the  necessary  minimum  of  subsistence.  For  to  tax 
this  "  minimum"  would  necessitate  an  equal  return  from  the 
taxes,  which  would  occasion  a  net  loss  to  the  government, 
because  of  the  increased  cost  of  the  collection  and  dispensa- 
tion of  this  part  of  its  revenue  without  any  net  return  to 
itself. 

But  this  view  of  exemption  from  taxation  appears  to  me  to 
be  entirely  wrong.     It  overlooks  important  factors   in   the 

^  Cohn,  o/>.  cit.,  pp.  324-5. 


583]  ETHICAL  PRINCIPLES  OF  TAXATION  247 

problem.  It  is  consistent  only  with  the  protective  theory  of 
the  state  and  the  benefit  principle  of  taxation.'  For  since 
every  individual  receives  protection,  and  thereby  derives  a 
benefit,  every  individual,  without  exception,  should  con- 
tribute to  the  cost  of  that  protection.  In  the  case  of  prop- 
erty there  could  be  no  tax  for  protection  if  there  was  no 
property  to  protect.'^  But  for  the  protection  of  the  person 
there  could  be  no  exception,  other  than  that  of  absolute 
necessity.  For  every  "benefit"  there  must  be  a  correspond- 
ing tax.  If  we  consider  the  benefit  to  consist  in  the  gains 
from  "  exchange  "  there  could  be  no  tax  where  such  "  gains  " 
did  not  exist,  but  there  are  certain  benefits  that  are  imma- 
terial gains,  common  to  every  member  of  the  state,  and  for 
these  gains  every  citizen  should  contribute  a  tax  in  exchange.3 
Again,  we  may  regard  the  benefit  as  consisting  in  the  ser- 
vice performed  by  the  state  in  production.  In  this  case,  if 
we  look  at  results  only,  there  could  be  no  tax  if  the  "  ser- 
vice "  was  not  utilized — if  there  was  no  production.  But,  on 
the  other  hand,  if,  more  properly,  we  regard  the  state  as  the 
condition  precedent  to  all  production,  in  which  every  one  is 
privileged  to  participate,  there  would  seem  to  be  no  ground 
for  exemption. "»  At  any  rate,  Stein  considers  it  to  be  just  to 
tax  labor  on  the  ground  that  it  is  only  by  the  administra- 
tion of  the  state  that  its  acquisitions  are  made  possible.^  In 
reality,  however,  the  problem  of  exemption  is  not  consistent 
with  Stein's  theory  of  "  diffusion,"  since,  according  to  this 
theory,  the  burden  of  the  tax  is,  in  the  main,  justly  dis- 
tributed through  the  influence  of  price.^  Or,  again,  if  the 
benefit  consists  in  the  possession  of  a  portion  of  the  "  na- 
tional capital,"  and  the  tax  is  distributed  in  proportion  to 
the    amount    of    this    capital   held,  then    there    can    be    no 

^  Cf.  Murhard,  op.cit.,  p.  90.  '  CJ.  Sismondi,  op.  cit.,  p.  164. 

'  Cf.  Perry,  op.  cit.,  p.  515-8.  *  Cf.  Stein,  op.  cit.,  p.  496. 

*  Ibid.,  ii,  p.  251.  ^  Ibid.,  i,  p.  494. 


248  JUSTICE  IN  TAXATION  [584 

exemption  except  where  there  is  no  possession  of  the 
national  capital.  "  The  minimum  of  needs  is  spared  by 
force  of  necessity,  not  by  virtue  of  a  false  principle."  ' 

Much  the  same  conclusion  results  when  exemption  is  con- 
sidered from  the  viewpoint  of  "  equality  of  sacrifice;"  for  if 
"  equality  of  sacrifice  "  is  the  true  principle  of  taxation  any 
exemption  must  appear  as  a  contradiction  of  the  principle, 
and  is  to  be  justified  only  on  grounds  of  absolute  necessity.* 
For  where  there  is  no  tax  there  can  be  no  sacrifice,  and 
hence  no  "  equality  "  in  taxation.  Exemption  is  an  excep- 
tion to  the  principle,  not  a  logical  consequence  of  it.3 
Nevertheless,  Sax  attempts  to  deduce  exemption  as  a  conse- 
quence of  the  principle  of  subjective  sacrifice,  and  his  ex- 
planation is,  perhaps,  the  best  that  has  been  given  from  this 
standpoint.  The  thought  is,  as  with  Mill,'^  that  the  physical 
necessities  are  incomparable  in  their  intensity  with  all  other 
classes  of  needs,  comparison  being  possible  only  between 
those  needs  that  are  satisfied  after  the  physical  minimum  is 
passed,  the  comparison  including  all  collective  needs.  But 
no  needs  above  the  physical  minimum  (which  includes  the 
collective  needs)  can  be  satisfied  until  the  needs  below  the 
minimum  are  fully  satisfied.  Hence,  sharing  in  the  expense 
for  the  satisfaction  of  collective  needs  can  take  place  only 
where  the  means  exceed  the  requirements  of  the  minimum 
of  subsistence. 5  The  exemption  is  a  matter  of  necessity,  not 
of  principle.  "  On  grounds  of  absolute  necessity  the  pure 
minimum  must  be  exempted,  but  justice  does  not  demand 
any  exemption  so  long  as  there  is  an  income  equal  to  the 
minimum  plus  the  tax."* 

But  exemption  on  the  ground  of  necessity  is  confined  to 
the  bare  physical  necessities  of  life.     If  exemption  is  to  be 

>  Menier,  op.  cit.,  p.  221.  *  See,  for  example,  Wagner,  op.  cit. 

*  Cf.  Meyer,  op.  cit.,  p.  294.  *  Mill,  Political  Economy,  v,  2,  3. 

*  See  Sax,  GrundUgung,  pp.  509-13.        •  Sax,  Die  Progressivsteuer,  p.  69. 


585]  ETHICAL  PRINCIPLES  OF  TAXATION  249 

justified  on  income  that  exceeds  the  requirements  of  these 
bare  necessities,  it  must  be  justified  upon  some  fundamental 
principle,  be  the  logical  outcome  of  the  "  fundamental 
thought "  that  lies  at  the  basis  of  the  ethical  idea  of  taxa- 
tion. Such  I  believe  to  be  in  accordance  with  the  real  facts 
of  the  case.  We  have,  then,  two  problems  before  us — the 
justification  of  exemptions  and  the  limitations  of  exemption. 

I .  The  Justification  of  Exemptions.  Accepting  the  ability 
basis  of  taxation,  exemption  of  the  minimum  of  subsistence 
follows  as  a  necessary  consequence.  For  if  taxation  accord- 
ing to  ability  is  the  true  principle  of  taxation,  it  is  a  mere 
truism  to  say  that  where  there  is  no  ability  there  can  be  no 
obligation.  It  is  not  merely  that  there  can  be  no  tax  if 
there  is  no  ability,  but  where  the  ability  does  not  exist  the 
tax  obligation  does  not  exist.  The  obligation  begins  the 
moment  that  the  ability  is  manifest.  To  tax  where  there  is 
no  ability  would  be  a  violation  of  the  principle  that  taxes 
should  be  proportioned  to  ability.  Exemption,  where  there 
is  no  ability,  is  but  the  fulfilment  of  the  impHcations  of  the 
principle  which  is  assumed  to  be  the  just  basis  for  the  dis- 
tribution of  the  tax  burden.  It  is  not,  as  in  the  preceding 
theories,  a  necessary  exception  in  contradiction  with  the 
principle  that  is  assumed  as  the  basis  of  taxation. 

It  is  true  that  the  exemption  of  any  person  from  the  pay- 
ment of  taxes  is  in  contradiction  with  the  principle  of  uni-. 
versality.  But  this  principle  is  a  relative,  not  an  absolute, 
principle  of  taxation.  Or,  if  politically  and  economically  it 
is  absolute,  ethically  the  principle  of  universality  extends 
only  so  far  as  there  is  ability.  Within  this  limit  only  is  it  a 
universal  principle.  Hence,  while  exemption  is  an  excep- 
tion to  the  general  principle  of  universality,  it  is  in  harmony 
with  the  qualified  form  of  the  principle — the  form  in  which  it 
is  a  true  principle  of  taxation.  True,  exemption  of  the  min- 
imum of  subsistence  is  a  necessity,  but  this  is  not  its  only 
justification.     It  follows,  as  we  have  seen,  from  principle. 


2^0  JUSTICE  m  TAXATION  [586 

But  the  real  justification  of  exemption  rests  upon  a  basis 
that  is  more  fundamental  than  the  idea  of  taxation  according 
to  ability.  It  rests,  indeed,  upon  the  same  "  fundamental 
thought"  as  does  the  idea  of  ability  itself.  Both  are  devel- 
opments of  the  same  fundamental  idea — human  personality 
in  its  relation  to  the  state.  It  involves  both  the  relations  of 
the  individuals  to  the  state  and  their  relations  to  each  other, 
and  not  simply,  as  Meyer  holds,  their  relation  to  the  state ; 
nor,  as  Wagner  seems  to  hold,  simply  their  relations  to  each 
other.'  Particularly  is  this  true  if  the  exemption  is  to  extend 
beyond  the  bare  necessities  for  physical  existence. 

What,  then,  is  the  fundamental  ground  of  exemption,  or 
of  exceptions  to  the  principle  of  universality  in  taxation? 
The  more  common  idea  is  that  since  every  individual  parti- 
cipates in  the  ends  for  which  a  state  exists,  every  individual, 
without  exception,  should   contribute  to  its  support.     But 
this  we  have  found  to  be  conditioned  by  the  further  prin- 
ciple, that  the  support  should  be  proportioned  to  ability ; 
by  implication  there  being  no  obligation  where  there  is  no 
economic   ability.     But  we   have  now  to  inquire   why  this 
obligation  does  not  exist  when  the  importance  of  the  state 
to  every  individual  is  admitted.     Those,  for  example,  who 
hold  that  the  obligation  never  ceases  base  their  conviction 
upon  the  idea  that  the  state,  if  not  of  first  importance,  is,  at 
least,  of  equal  importance  with  physical  subsistence,  to  every 
member  of  civilized  society.     This  is  the  view  of  both  Held 
and    Cohn.     Held,   for  example,  in  declaring    against   the 
exemption  of  the  wages  of  labor,  says :   "The  state  is  for  all 
a  need ;   its  existence  for  the  whole  is  more  necessary  than 
the  life  of  the  individual."'     So  likewise  Cohn:   "Plainly,  as 
viewed  from  the  standpoint  of  the  latest  theory  of  the  state, 
there  is  no  room  for  the  doctrine  which  admits  the  state  and 
its  demands  only  as  second  to  the  necessaries  of  life.     The 
»  See  Meyer,  cp.  cit.,  pp.  293-4.  *  Held,  op.  cit.,  p.  105. 


587]  ETHICAL  PRINCIPLES  OF  TAXATION  2$  I 

State,  above  all  things,  is  part  of  these  necessaries  and  its 
demands  are  therefore  part  and  parcel  of  the  demands  of 
subsistence."'  Hence,  theoretically,  or  in  principle,  there 
is,  according  to  this  view,  no  justification  for  exemption. 

But  the  view  of  Held  and  Cohn  appears  to  me  to  be  a 
mistaken  one.  It  is  based  upon,  or  at  least  it  implies,  the 
erroneous  conception  of  the  state  as  a  "social  organism," 
the  individual  being  a  means,  the  state  the  end.  But  ac- 
cording to  the  view  that  the  state  exists  for  the  highest 
development  of  human  personality — the  individual  being  the 
end,  the  state  a  means — "  the  latest  theory  of  the  state,"  the 
effect  of  the  tax  upon  the  person  becomes  of  first  import- 
ance. If  the  state  is  a  necessity  to  this  development,  it  is 
quite  as  true  that  there  must  first  be  the  existence  of  the 
person.  Moreover,  the  right  to  provide  the  means  of  sub- 
sistence is  a  fundamental  right,  and  is  prior  to  every  other 
right.  Even  Held  admits  this.  He  goes  even  farther,  and, 
in  spite  of  his  theoretical  objection  to  exemptions,  would 
exempt  not  only  what  is  necessary  for  the  physical  needs  of 
self  and  family,  but  also  what  is  necessary  for  their  spiritual 
life.''  Vocke,  too,  recognizes  the  right  to  the  necessary  needs 
of  subsistence  as  prior  to  any  claims  of  the  state,  but  he  limits 
this  right  to  the  bare  minimum  of  subsistence.3  It  must  be 
admitted,  however,  that  with  Held  the  exemption  which  he 

^Cohn,  op.  cit.,  p.  331.     Cf.  also,  p.  354. 

' "  Den  Jeder  hat  vor  AUem  das  Recht  zu  leben,  und  es  ist  wohl  die  schreiendste 
Ungerechtigkeit  von  dem  zum  nothdiirftigen  Unterhalte  erforderlichen  Einkom- 
men  noch  offentliche  Abgaben  fiir  den  Staat  zu  fordern."  Held,  op.  cit.,  p.  451. 
"  So  wahr  aber  der  Mensch  ein  Vernunftwesen  ist,  muss  einem  Jedem  nicht  bless 
as  verlassen  werden,  was  ihm  zum  sinnlichen,  sondern  auch  Das,  was  ihm  zum 
geistlichen  Leben  unentbehrlich  ist."     Ibid.,  p.  452. 

""  Der  Staat  nur  solche  Anspriiche  als  seinen  eigenen  vorgehend  anerkennen  darf 
und  kann,  welche  alter  und  naturgemiss  noch  berechtiger  sind  als  er  selbst, 
nSmlich  das  Recht  auf  die  Selbsterhaltung  und  auf  die  Erhaltung  der  Familie, 
bzw.  in  diesen  auf  die  Erhaltung  des  Menschengeschlechts.  Ein  altereres,  unbe- 
dingteres  Recht  gibt  es  nicht."     Vocke,  0/.  cit.,  p.  480.     See  also  pp.  463-4. 


252  JUSTICE  IN  TAXATION  [588 

would   allow  is  not  a  right,  but  only  a  social   need   that  is 
necessary  to  the  highest  efficiency  of  labor.' 

That  exemption  of  the  minimum  of  subsistence  is  a  neces- 
sity, as  is  so  universally  emphasized,  goes  without  saying; 
but  the  above  considerations  show,  I  think,  that  the  exemp- 
tion is  also  justified  in  principle,  and  is  not,  as  Von  Hock 
claims,  "  a  simple  act  of  benevolence."  ^  I  do  not  see  how 
any  other  conclusion  is  possible  when  we  reflect  that  the 
ultimate  end  of  the  state  is  the  developed  personality  of  the 
individual.  For  the  first  condition  of  this  development  is  an 
economic  personality,  an  economic  freedom,  which  involves 
above  all  the  necessary  means  of  subsistence.  And,  there- 
■  fore,  to  tax  the  "  minimum  "  is  to  nullify  or  retard  the  very 
development  which  it  is  the  purpose  of  the  state  to  promote. 
This  is  even  more  patent  if  the  tax  necessitates  a  public 
charity. 

The  economic  and  social  importance  of  an  "  economic 
personality"  was  clearly  recognized  by  Held,  who  deemed 
it  a  sufficient  ground  for  the  exemption,  not  only  of  a  bare 
minimum,  but  of  a  sufficient  minimum  to  enable  the  poor  to 
rise  to  a  higher  economic  order.3  Stein  goes  even  farther 
and  justifies  exemption  because  of  its  bearing  upon  the  total 
personality  of  the  individual.  True,  Stein  regards  the  state 
as  an  "  organism  "  whose  personality  is  to  be  realized,  the 
tax  being  a  necessary  means  to  this  end.  But  this  "  or- 
ganic "  view  adds  nothing  to  the  theory.  For  the  fully 
realized  personality  of  the  state  is  marked  by  the  realized 
personality  of  the  individual,  or  the  highest  form  of  personal 
life — "  personal  freedom."  Indeed,  the  realization  of  "  per- 
sonal freedom  "  is  regarded  as  the  ultimate  end  of  the  state, 
and  this  realization  is  efifected  by  the  realization  of  its  own 
personality.     But  the  first  requisite  is  "  economic  freedom." 

^Held,  p.  118. 

»  Von  Hock,  op.  cit.,  p.  173.  ^  Held,  op.  cit.,  p.  1 1 8. 


589]  ETHICAL  PRINCIPLES  OF  TAXATION  253 

Hence,  the  exemption  of  the  minimum  of  subsistence.'  The 
same  conclusion  is  reached  by  Schaf^le,  though  from  a  diflfer- 
ent  point  of  view.  Emphasizing  the  fact  that  the  tax  obli- 
gation rests  upon  personality — upon  the  person — it  is  justly 
held  that  there  can  be  no  obligation  where  the  personality 
has  not  realized  itself  in  property,  in  an  economic  personal- 
ity (eine  Vermogenspersonlichkeit),  since  what  the  state  re- 
quires is  economic  goods.'  That  is,  while  the  tax  obligation 
rests  upon  personality  it  is  only  potential  until  there  is 
realized  an  "  economic  personality." 

While  there  is  much  truth  in  these  different  views  of  the 
relation  of  exemption  to  personality,  the  question  of  real 
importance  is  the  effect  of  a  tax  (upon  the  minimum)  or  of 
an  exemption,  upon  the  personality  of  the  taxpayer.3 
Where  this  is  endangered  there  can  be  no  obligation ;  and  it 
is  endangered  when  it  has  not  so  far  developed  as  to  have 
realized  itself  in  objective  goods  sufficient  to  meet  the  needs 
of  subsistence ;  to  have  realized  itself,  that  is,  in  economic 
freedom,  in  economic  personality.  In  brief,  the  obligation 
begins  when  "economic"  or  "personal"  freedom  begins. 
The  first  claim  upon  property,  which  we  have  seen  to  be  the 
objectified  self,  and  therefore,  in  a  sense,  a  "  natural  right," 
is  subsistence  of  the  self,  of  the  physical  person ;  but  since 
the  state  is  a  condition  of  the  development  of  the  person- 
ality of  self,  the  obligation  to  use  the  property  to  support 
the  state,  and  the  right  of  the  state  to  demand  this  support, 
begins  after  the  needs  of  physical  subsistence  are  met. 

But  this  right  to  exemption,  on  the  part  of  those  who  have 
incomes  at  or  below  the  minimum  of  subsistence,  involves  a 
corresponding  obligation,  on  the  part  of  those  who  have  in- 
comes above  the  minimum,  to  meet  the  full  demands  of  the 

*  Stein,  op.  cit.,  section,  Die  Steuer. 

'See  Schaffle,  Grundsdtze,^^.  14  and  169. 

2  Cf.  Schaffle,  ibid.,  p.  170. 


254  JUSTICE  IN  TAXATION  [590 

state  for  economic  goods.  Nor  docs  this  obligation  rest 
simply  upon  the  nature  of  their  relation  to  the  state  as  alone 
possessing  economic  ability,  but  it  has  its  basis  also  in  the 
nature  of  the  ethical  relation  of  man  to  man,  of  man  as  a 
spiritual  being — an  end  in  himself.  Indeed,  from  no  other 
point  of  view  is  exemption  to  be  justified  in  principle, 
whether  considered  with  respect  to  the  relation  of  the  in- 
dividual to  the  state,  or  with  respect  to  the  relation  of 
individuals  to  each  other  as  persons.  Directly  and  imme- 
diately, however,  the  basis  of  exemption  is  the  principle  that 
the  burden  of  taxation  should  be  proportioned  to  ability. 
Even  the  social-political  argument  of  Wagner  assumes  to  be 
based  upon  this  principle.  But  in  making  social-political 
ends  the  only  justification  of  exemptions,'  Wagner  diverts 
his  argument  from  the  main  point  at  issue.  For  the  real 
social-political  end  of  exemption,  like  that  of  progression,  is 
not  to  distribute  the  tax  according  to  ability,  but  by  equal- 
izing property  to  equalize  ability.  But  the  attainment  of 
such  a  result  is  not  a  problem  of  taxation. 

There  are,  however,  various  other  arguments  for  the  ex- 
emption, which  do  not  involve  the  question  of  principle,  but 
are  of  a  practical  nature.  Such,  for  example,  is  the  argu- 
ment based  upon  an  assumed  analogy  between  capital  and 
labor  and  the  necessity  of  maintaining  their  highest  effi- 
ciency. As  developed  by  Luigi  Rameri  it  is,  that  income 
consumed  for  subsistence  is  a  species  of  recuperation  of 
capital,  "  being  spent  to  maintain  the  productive  force  of 
labor;  "  that,  therefore,  such  income  should  be  exempt  from 
taxation  for  the  same  reason  that  the  taxable  income  from 
any  industry  excludes  that  part  of  the  product  that  goes  to 
pay  current  expenses  and  to  keep  up  the  plant."  Hence, 
only  the  clear  income  is  a  taxable  income.    This  is  the  same 

'  See  Wagner,  op.  cit.,  ii,  §  167. 

*  Luigi  Rameri,  "Per  la  Proportionalita  delle  Imposte,"  in  Rassegna  for  Oct.  1891. 


I>  ,.- 


591]  ETHICAL  PRINCIPLES  OF  TAXATION  2$$ 

economic  argument  as  that  used  by  Held  who  justifies 
exemption  on  the  ground  that  to  tax  the  "  minimum 
would  lessen  the  efficiency  of  labor.'  While  the  argument 
has  directly  only  an  economic  bearing  it  is  nevertheless  of 
considerable  importance,  since  to  curtail  labor  efficiency  is 
to  check  economic  progress  and  thereby  to  lessen  the  means 
and  with  it  also  the  efficiency  of  the  state.  It  is  given  an 
added  weight  when  we  reflect  that  the  evil  influences  would 
be  cumulative  in  their  effects.  But  indirectly  the  argument 
bears  also  upon  the  principles  previously  discussed.  For  in- 
lessening  labor  efficiency  by  a  tax  upon  the  "  minimum  "  we 
check  the  development  of  "  economic  personality,"  and  witfv 
it  also  that  social  development  that  leads  to  the  development 
of  the  larger  personality  of  man. 

Passing  over  the  ''compensatory"  argument^  which  is  a 
question  of  special  and  not  of  general  exemption,  we  may 
note  the  argument  based  upon  Adam  Smith's  fourth  canon 
of  taxation  :'  the  argument  that  there  should  be  an  exemp- 
tion of  small  incomes  on  the  ground  that  the  cost  of  collec- 
tion of  the  tax  would  be  in  excess  of  the  receipts.  The 
effect  of  such  a  tax  would  be,  not  only  to  work  economic 
injury  to  those  having  small  incomes,  but  also  to  those  hav- 
ing large  incomes,  by  unnecessarily  and  unjustly  increasing 
their  tax  burden.  From  this  point  of  view  exemptions 
would  be  justified  even  though  they  were  not  justified  in 
principle.  Nor  would  the  exemption  necessarily  be  limited 
to  the  minimum  of  subsistence,  but  should  extend  to  the 
point  where  the  receipts  from  the  tax  would  just  exceed  the 
cost  of  its  collection ;  just  as  in  the  preceding  economic 
argument  the  exemption  should  extend  to  the  point  where 
the  tax  would  not  cripple  the  efficiency  of  labor. 

'See  Held,  op.  cit.,  p.  118. 

''  For  this  argument  see,  for  example,  Mile.  Royer,  op.  cit.^  pp.  23-7, 

'  Adam  Smith,  op.  cit,,  p.  416. 


256  JUSTICE  IN  TAXATION  [592 

But  while  such  arguments  as  these  have  their  weight,  and 
should  be  considered  in  any  practical  application  of  the 
principle  of  exemption,  the  real  justification  of  exemption 
must  be  found,  as  we  have  seen,  in  the  nature  of  man,  the 
nature  of  the  state,  and  the  relation  of  man  to  the  state. 
The  importance  of  the  state  to  the  individual  cannot  be 
ignored,  but  at  the  same  time  the  supreme  importance  of 
the  individual  should  be  recognized.  This  is  brought  out 
very  well  by  Vocke,  who  of  all  writers  has  most  clearly 
stated  the  true  principle  of  taxation.  His  statement  is  a 
good  summary  of  the  whole  argument.  "  Man,"  he  says, 
"  lives  and  moves  in  the  state  and  for  the  state,  but  not 
alone  that,  for  he  is  an  end  in  himself ;  if  he  exists  for  the 
state  the  state  exists  for  him.  And  if  man  lives  through  the 
state  he  does  not  live  alone  through  the  state,  but  also,  and 
indeed  in  the  first  instance  through  himself.  Man,  generally 
speaking,  is  before  the  state,  and  if  the  state  takes  from  him 
his  existence  it  puts  itself  in  contradiction  with  its  function 
and  its  purpose,"  '  for  the  first  duty  of  the  state  is  not  to 
endanger  the  existence  and  the  support  of  man.^  And  it  is 
claimed  with  much  truth,  that  if  we  remember  that  the  sub- 
ject of  the  tax  is  persons,  not  things,  the  problem  solves 
itself.3 

2.  The  Limitation  of  Exemptions.  The  argument  has  thus 
far  assumed  that  the  exemption  should  be  confined  to  the 
"  minimum  of  subsistence."  But  is  this  "  minimum  "  limited 
to  the  absolute  necessities  of  life,  or  should  it  extend  to  a 

'  "  Der  Mensch  lebt  unci  webt  zwar  im  Staat  und  fur  den  Staat,  aber  das  alles 
nicht  allein,  sondern  er  ist  auch  Selbstzweck ;  er  ist  nicht  nur  um  des  Staats  willen, 
sondern  auch  der  Staat  ist  um  des  Menscben  willen.  Ebenso  lebt  der  Mensch 
durch  den  Staat,  aber  das  ebenfalls  nicht  allein,  sondern  auch,  und  zwar  in  erster 
Reihe,  durch  sich  selbst.  Der  Mensch  ist  iiberhaupt  vor  dem  Staat,  und  wenn 
hiernach  der  Staat  den  Menschen  in  seiner  Existenz  angreift,  so  setzt  er  sich  in 
Widerspruch  mit  seiner  Aufgabe   und  seiner  Bestimmung."     Op.  cit.,  p.  459. 

*IHd.  ^ /iid.,  TpY>.  471-2. 


593]  ETHICAL  PRINCIPLES  OF  TAXATION  257 

"culture  minimum"?  In  other  words,  Does  the  obligation 
to  contribute  to  the  support  of  the  state  begin  the  moment 
that  income  exceeds  the  necessary  means  of  physical  sub- 
sistence, or  is  the  obHgation  relative  to  an  arbitrary  standard 
of  life? 

In  the  first  place  the  "  minimum  "  must  be  sufficient,  not 
only  for  the  subsistence  of  the  person  but  also  for  the  main- 
tenance and  support  of  the  family.  Without  such  an  exten- 
sion of  the  "  minimum"  the  race  could  not  be  perpetuated, 
at  least  under  the  conditions  that  promote  the  highest 
civilization,  the  highest  development  of  individual  person- 
ality. Moreover,  the  family  is  the  natural  economic  unit — 
the  unit  of  economic  personality,  of  economic  freedom. 
And  without  the  economic  freedom  of  the  family  the  first 
important  step  towards  realized  personality  must  remain 
untaken,  the  first  important  step  towards  the  fulfilment  of 
the  ends  of  the  state  unattained.  The  family  as  much  as  the 
individual  precedes  the  state — conditions  the  state.  Provi- 
sion for  its  subsistence  is,  therefore,  not  only  a  right,  but  is 
a  "natural  right,"  that  the  state  is  in  duty  bound  to  respect. 
To  quote  Vocke,  "The  state  has  the  same  obligation  to 
recognize  the  necessary  care  of  the  family  as  a  duty  prior  to 
its  own  claims,  as  it  has  to  recognize  that  of  self- main- 
tenance." ' 

In  the  second  place,  there  can  be  no  permanent  economic 
freedom — requisite  to  permanent  economic  personality — until 
the  income  is  sufficient  to  provide  not  only  the  absolute 
necessities  of  physical  existence,  but  also  to  provide  for  the 
maintenance  of  labor  power  and  for  times  of  sickness,*  for 
the  family  as  well  as  for  the  self.  For  a  state  to  levy  a  tax 
that  would  be  prejudicial  to  either  of  these  conditions  would 
be  to  weaken  the  source  of  its  own  support;  and  besides,  it 
would  be  as  much  a  contradiction  of  its  own  purpose  as  to 

'  Op.  cit.,  p.  467.  '  Cf.  Vocke,  ibid.,  p.  460. 


258  JUSTICE  IN  TAXATION  [594 

tax  the  absolute  necessities  of  physical  existence,  differing 
only  in  degree.  On  the  other  hand,  until  the  "minimum" 
is  sufficient  to  meet  these  requirements  there  is  no  real  tax 
ability,  and  therefore  no  tax  obligation.' 

But  when  these  requirements  have  been  met,  when,  that 
is,  there  is  a  "  clear"  income  above  the  minimum  of  subsist- 
ence as  above  understood,  the  obligation  to  aid  in  the  sup- 
port of  the  state  begins.  Or  the  obligation  that  was  before 
potential,  because  of  the  importance  of  the  state  to  the  indi- 
vidual, now  for  the  first  time  becomes  actual.  If  exemption 
is  extended  beyond  this  limit  it  cannot  be  as  a  right,  but 
only  on  grounds  of  policy — political,  social,  or  economic. 
It  is  true  that  the  limit  is  somewhat  arbitrary,  for  it  is 
difficult  to  determine  exactly  how  much  should  be  set  aside 
as  necessary  for  the  support  of  the  family  or  to  maintain  the 
labor  power  of  the  taxpayer.  In  fact,  the  limit  is  a  purely 
relative  one,  the  standard  for  exemption  necessarily  depend- 
ing upon  the  accepted  standard  of  life,  which  is  itself  con- 
ditioned by  the  customs,  habits,  social  ideals  and  degree  of 
culture  attained ;  and,  above  all,  by  the  conditions  of  indi- 
vidual and  national  wealth.  Practically  the  standard  must 
be  determined  by  the  same  principles  that  determine  the 
rate  of  progression. 

Still,  it  should  be  remembered  that  purely  on  grounds  of 
theoretical  justice  only  provision  for  normal  support,  and 
normal  efficiency,  should  be  allowed.  For  example,  allow- 
ance cannot,  or  should  not,  be  made  for  abnormally  large 
famihes,^  since  this  would  be  to  put  a  premium  upon  thrift- 
lessness  and  irresponsibility,  and  thus  to  encourage  an 
increase  of  population  where  most  detrimental  to  society, 
and  to  the  highest  individual  development.     On  the  other 

^ "  Die  Leistungsfahigkeit  aber  ist  das  notwendige  Korrelat  der  Leistungspflicht, 
welche  ohne  jene  nicht  denkbar  ist."     Vocke,  p.  284. 
*  See,  per  contra,  Wagner,  op.  cit.,  ii,  447. 


595]  ETHICAL  PRINCIPLES  OF  TAXATION  259 

hand,  if  more  than  the  normal  efficiency  of  labor  is  allowed 
for  in  the  exemption,  it  must  be  because  of  the  retroactive 
effects  of  the  exemption,  or  because  of  the  disproportionate 
cost  of  the  collection  of  the  tax.  But  with  advancing 
wealth,  advancing  culture,  and  advancing  civilization  the 
standard  of  exemption  should  be  raised  in  conformity  with 
the  ends  for  which  the  state  exists — the  progressive  develop- 
ment of  mankind. 


CHAPTER  VIII 

PRACTICAL  JUSTICE   IN   TAXATION 

In  the  preceding  study  of  the  principles  of  justice  in  tax- 
ation, we  have  not  wholly  lost  sight  of  the  fact  that  theoret- 
ical ideals  are  not  always,  nay  are  seldom,  fully  realizable  in 
practice.  Nor  have  we  been  unmindful  of  the  fact  that 
economic  and  social  conditions  must  enter  largely  into  our 
determination  of  the  ideal.  For  since  the  ideal  in  taxation 
must  necessarily  have  as  its  objective  point  the  effects,  or 
results,  of  this  or  that  system  or  method  of  taxation,  the 
nature  of  the  effect  must  be  a  controlling  influence  in  deter- 
mining the  character,  or  the  justice,  of  our  ideal.  But  while 
we  have  recognized  the  relative  nature  of  the  ideal  of 
justice  in  taxation  it  must  be  admitted  that  we  have  not 
developed  this  aspect  of  the  question,  but  have  given  our 
attention  almost  entirely  to  theoretical  principles.  And  yet, 
we  insist,  not  to  theoretical  principles  that  are  purely  vision- 
ary in  the  sense  that  they  are  applicable  only  to  ideal  beings, 
but  principles  that  are  founded  upon  the  ethical  nature  of 
man  and  upon  moral  and  social  facts  and  forces.  Neverthe* 
less,  the  fact  that  the  dominant  thought  has  been  that  of  the 
morally  right — of  justice — has  led  us  to  ignore  for  the  most 
part  the  possibility  of  the  practical  realization  of  our  ideal. 
So  true  is  this,  indeed,  that  there  will  be  a  seeming  justice 
for  the  critic  who  urges  that  our  theoretical  principles  afford 
no  solution  to  the  apparently  insoluble  problem  of  practical 
justice  in  taxation.  Moreover,  since  the  theoretical  prin- 
ciples are  unrealizable  in  practice,  the  critic  may  further 
260  [596 


597]  PRACTICAL  JUSTICE  IN  TAXATION  261 

urge  that  there  can  be  no  value  in  these  theoretical  discus- 
sions. 

But  before  we  concede  the  truth  of  these  criticisms  let  us 
consider  for  a  moment  whether  theoretical  principles  that 
cannot  be  fully  realized  in  practice  may  not  after  all  have 
some  practical  value ;  indeed,  whether  the  principles  them- 
selves are  not  to  some  extent,  at  least,  practicable.  In  the 
first  place,  there  is  always  a  practical  value  in  determining  a 
norm  for  the  guidance  of  real  life,  or  for  the  guidance  of 
action  in  the  actual  happenings  of  life.  Human  action  un- 
guided  by  an  ideal  can  be  but  irrational,  purposeless,  and 
without  significance  or  achievement.  This  is  as  true  in 
matters  of  taxation  as  in  the  purely  moral  life.  Indeed, 
since  human  action  is  necessarily  social  action,  a  norm  of 
conduct  becomes  indispensable,  for  otherwise  there  could  be 
only  the  self-seeking  of  the  individual  which  would  be 
destructive  of  social  life,  and  so  ultimately  also  of  any  truly 
human  life. 

But  again,  Is  there  nothing  practicable  in  the  theoretical 
principles  we  have  discussed  ?  The  answer  to  the  question 
must  depend  upon  the  meaning  we  give  to  the  "  prac- 
ticable." But  the  practicable  must  mean  one  of  two  things : 
Either  a  system  which  is  so  in  harmony  with  prevailing 
sentiments  and  convictions  that  there  is  a  possibility  of  its 
immediate  adoption ;  or  a  system  of  which  there  is  a  reason- 
able hope  of  adoption  by  a  change  in  the  prevailing 
thoughts  and  ideals.  Now  we  maintain  that  there  is  some- 
thing practical  in  our  principles  from  both  points  of  view. 
In  fact,  there  is  no  principle  that  we  have  advocated  that 
cannot  be  found  in  actual  practice  in  one  country  or  an- 
other, so  that  the  problem  is  not  so  much  one  of  a  practical 
application  of  new  principles  as  an  extension,  or  fuller 
application,  of  accepted  principles.  But  though  there  may 
be  some  principles  not  in  harmony  with  the  sentiments  of  a 


262  JUSTICE  IN  TAXATION  [598 

particular  people,  there  may  yet  be  some  practical  value  in 
their  discussion ;  for  a  nation,  like  an  individual,  can  pro- 
gress only  as  its  thought  and  ideals  move  ever  upward  to 
higher  and  truer  standards. 

But  there  is  yet  another  point  of  view  from  which  we  may 
consider  the  practicability  of  theoretical  principles  of  just 
taxation — that  of  their  implications.  That  is  to  say,  if  the 
principles  involve  consequences  that  are  impossible  to  be 
realized  in  practice  it  would  seem  to  be  a  just  charge  that 
the  principles  are  themselves  impracticable.  What,  then, 
are  the  implications  involved  in  our  principles,  if  these  prin- 
ciples are  to  be  fully  realized?  Undoubtedly  the  student  of 
finance  will  say :  A  single  tax  on  incomes.  Nay,  more,  an 
income  tax  with  progressive  and  differential  rates  together 
with  a  broad  application  of  the  principle  of  exemptions. 
Nor  can  one  deny  the  justice  of  this  judgment.  More  than 
this,  however,  is  true ;  for  there  are  not  a  few  economists 
and  students  of  finance  who  will  grant  that  under  ideal  con- 
ditions of  human  life  and  human  relations — when  a  sound 
social  ethics  dominates  human  affairs — such  a  system  of 
taxes  would  most  nearly  realize  the  ideal  of  justice.  But  we 
are  not  dealing  with  such  ideal  conditions,  and  taking  the 
facts  as  we  find  them — the  sentiments,  prejudices  and  con- 
victions of  the  people — there  can  be  no  doubt  but  that  a 
single  progressive  tax  on  incomes  is  one  of  the  most  vision- 
ary of  all  possible  forms  of  taxation,  particularly  with  re- 
spect to  the  people  of  the  United  States. 

But  after  all,  is  such  an  implication,  or  such  a  consequence, 
involved  in  our  theory?  The  main  burden  of  our  whole 
thesis  has  been  to  show  not  only  that  the  tax  burden  should 
be  distributed  according  to  the  ability  to  bear  it,  but  to  show 
the  grounds  upon  which  such  a  principle  rests.  True,  it 
was  found  that  the  ability  is  determined  in  part  by  income 
and  in  part  by  the  needs  which  that  income  must  satisfy,  and 


599]  PRACTICAL  JUSTICE  IN  TAXATION  263 

that,  therefore,  a  tax  in  proportion  to  ability  is  necessarily 
based  upon  income,  though  it  may  be  with  progressive  and 
differential  rates.  Yet  the  fact  is  recognized  (if  not  before,' 
it  is  now)  that  the  tax  could  not  be  assessed  directly  upon 
income  for  the  reason  that  only  under  ideal  conditions  could 
the  income  be  ascertained.  Nay,  to  attempt  to  do  so  under 
existing  standards  of  social  ethics  would  be  to  defeat  the  end 
sought  by  imposing,  in  many  cases,  regressive  burdens.  We 
have  before  insisted  that  the  principles  of  justice  are  relative, 
in  the  sense  that  they  must  be  tested  by  results.  In  the  same 
way  must  we  determine  their  implications.  Because  under 
ideal  conditions  the  implications  involve  certain  results  it  by 
no  means  follows  that  under  actual  conditions  the  same  re- 
sults must  occur.  In  other  words,  because  under  ideal  con- 
ditions our  principles  involve  a  single  tax  on  incomes,  it  does 
not  follow  that  they  involve  such  a  tax  under  the  social  con- 
ditions as  we  actually  find  them  to  be.  The  main  thing  is  to 
tax  ability  by  taxing  income,  which  is  the  only  ultimate 
source  of  ability;  but  if  this  income  can  be  reached  and 
ascertained  by  the  indirect  method,  this  method  is  the  one 
demanded  by  our  principles.  Or  if  the  sentiment  of  the 
people  is  against  the  direct  ascertainment  of  ability  the  same 
conclusion  follows.  In  fact,  if  we  could  reach  the  full  income 
by  either  method  it  would  matter  little  which  one  was  em- 
ployed. We  must  then  employ  the  one  that  will  give  us  the 
most  accurate  results,  the  one  that  will  most  nearly  ascertain 
the  true  income.  Under  present  conditions  this  is  believed 
to  be  that  of  the  indirect  method.  Indeed,  with  a  proper 
system  it  is  believed  that  ability,  so  far  as  it  is  determined  by 
income,  can  be  ascertained  with  a  fair  approximation  to 
justice,  and  such  an  approximation  is  all  that  can  be  hoped 
for  in  human  afifairs.  And  yet  the  ideal — a  tax  on  income — 
is  not  without  its  value,  since  it  serves  as  the  goal  for  every 
indirect  system  of  reaching  the  income  ability  of  the  tax- 


264  fUSTICE  IN  TAXATION  [6oo 

payer,  for  every  tax,  however  assessed,  is  ultimately  a  tax 
on  income. 

Assuming,  then,  the  above  conditions,  it  remains  to  indi- 
cate the  character  of  a  practicable  tax  system  that  will  most 
nearly  realize  the  principles  for  which  we  have  contended. 
Nor  can  I  do  more  than  to  "  indicate  "  such  a  system.     I 
cannot  stop  either  to  elaborate  or  to  defend  it.  It  is  beheved, 
however,  that  the  system  which  we  shall  propose  is  not  only 
perfectly  consistent  with  our  principles,  but  is  one  of  which 
there  is  hope  for  its  gradual  adoption ;    and  when  adopted 
will  give  a  realization  to  justice  in  taxation  such  as  has  never 
yet  been  realized  in  this  country,  if,  indeed,  in  any  country. 
It  is  not  maintained  that  all  of  the  principles  would  be  fully 
realized,  as,  for  example,  the  principle  of  progressive  taxa- 
tion, but  that  we  should  attain  the  nearest  attainable  approx- 
imation of  those  principles,  and  at  the  same  time  go  a  long 
way  towards    removing    the    gross   inequalities   in   the   tax 
systems  of  our  several  States.' 

Our  present  thesis,  then,  is  to  outline  a  scheme  of  taxa- 
tion that  will  most  nearly  reach  the  full  income  of  the  tax- 
payer and  most  equitably  distribute  the  tax  burden — most 
nearly  and  most  equitably,  I  mean,  under  existing  condi- 
tions. And  this  method  is  believed  to  be  that  of  the  indi- 
rect one  of  reaching  income  through  some  index,  or  through 
indices,  of  income.  Such  an  index  is  to  be  found  in  prop- 
erty which,  as  we  have  seen,  may  be  regarded  either  as  the 
source  or  the  consequence  of  income.  And  by  taking  differ- 
ent forms  of  property  we  may  get  several  indices,  which  if 
wisely  selected  will  constitute  a  fair  basis  for  the  determina- 
tion of  income. 

But  the  problem  of  an  equitable  system  of  taxation  is 
something  more  than  this.  It  is  necessary  not  only  to 
select  such   indices  as  shall  be   fairly  representative   of  in- 

1  For  an  outline  of  a  rational  system  of  taxation,  see  Adams,  FudUc  Finatice. 


6oi]  PRACTICAL  JUSTICE  IN  TAXATION  265 

come,  but  such  as  may  be  most  easily  and  most  fairly 
assessed — perhaps  the  most  difficult  problem  in  the  whole 
field  of  practical  taxation.  For  if  property  is  to  be  made 
the  basis,  or  measure,  of  income„an  honest  assessment  be- 
comes fundamental  to  an  equality  of  taxation.  And,  there- 
fore, very  much  depends  both  upon  the  character  of  the 
property  taxed  and  the  method  by  which  it  is  taxed.  More- 
over, much  depends  also  upon  the  character  of  the  political 
unit  that  taxes  the  different  forms  of  property.  Or  in  other 
words,  the  problem  is  also  one  of  a  distribution  of  the  tax 
system  among  the  different  political  units  in  such  a  way  as 
to  realize  the  best  economic  and  ethical  results. 

In  brief,  then,  the  problem  before  us  is  one  of  the  assess- 
ment of  property,  of  the  methods  of  taxation,  of  the  kinds 
of  property  to  be  selected  for  taxation,  and  the  proper 
spheres  of  state  and  local  taxation.  We  cannot  stop  to  dis- 
cuss the  question  of  rates  or  of  exemptions.  Not  the  ques- 
tion of  rates,  because  it  is  admitted  that  only  the  propor- 
tional rate  is  feasible  for  the  present;  not  exemption, 
because  the  principle  is  universally  adopted  in  practice,  and 
we  do  not  feel  it  necessary  to  add  to  what  has  already  been 
said  on  the  subject.  And  yet  we  must  acknowledge,  that 
the  principle  of  exemption  is  not  carried  out  in  practice  to 
the  extent  that  our  principles  would  demand,  not  to  the 
extent  that  we  believe  to  be  justified.  Still,  as  previously 
pointed  out,  it  must  be  admitted  that  the  limit,  or  rather  the 
extension  of  exemption,  is  relative  to  the  prevailing  econ- 
omic and  social  conditions  of  the  people  and  to  the  econ- 
omic needs  of  the  state.  But  assuming  the  question  of 
exemptions  to  be  on  the  whole  fairly  settled,  and  the  ques- 
tion of  rates  to  be  for  the  present  outside  of  the  field  of 
practical  discussion,  let  us  attempt  to  portray  in  some 
detail,  though  briefly,  the  system  of  taxation  indicated 
above. 


266  JUSTICE  IN  TAXATION  ;  6o2 

I.  Assessments 

That  equitable  assessment  is  one  of  the  most  difficult 
problems  in  practical  taxation  is  admitted  on  all  hands.  It 
is  the  crucial  point  in  the  investigations  of  all  tax  commis- 
sions and  in  all  practical  plans  for  the  reform  of  our  present 
methods  and  systems  of  taxation.  And  yet  if  property  is  to 
be  made  the  measure  of  income — the  index  of  ability — equal 
assessment  is  indispensable  to  justice.  Indeed,  given  an 
honest  assessment  of  property  and  the  battle  for  justice  in 
taxation  is  as  well  as  won.  Whether  such  an  assessment 
maybe  approximated  will  depend  very  largely  upon  the  char- 
acter of  the  property  taxed  and  the  method  by  which  it  is 
assessed.  What,  then,  are  the  conditions  that  are  essential 
for  the  equal  assessment  of  property? 

I.  Declaration  versus  Doomage. — Much  has  been  written 
concerning  the  relative  merits  of  a  declaration  by  the  tax- 
payer, and  doomage  by  the  government.  Theoretically  the 
principle  of  declaration  is  no  doubt  the  correct  one.  This 
follows  inevitably  from  the  voluntary  character  which  we 
found  in  the  relation  of  the  citizen  to  the  state.  Yet  we 
found  at  the  same  time  that  there  is  also  a  compulsory 
feature  in  this  relation,  which  is  founded  upon  the  necessity 
of  the  state's  existence.  From  the  character  of  this  com- 
pulsion, founded  upon  a  political  necessity,  it  follows  that 
the  declaration  should  be  supplemented  by  the  doomage 
power  of  the  government.  This  double  feature — declaration 
and  doomage — is  the  prevailing  system  of  our  several  Com- 
monwealths, though  with  some  the  "  declaration,"  with 
others  the  "doomage"  is  made  the  key-note  of  the  system. 
But  however  much  the  principle  of  declaration  may  conform 
to  the  highest  ideals  of  taxation,  experience  shows  that  it  is 
not  a  principle  that  can  be  relied  upon  to  attain  justice 
until  there  prevails  a  higher  standard  of  social  ethics. 

No  system  can  be  just,  either  in  theory  or  in  practice,  that 


603]  PRACTICAL  JUSTICE  IN  TAXATION  267 

puts  a  premium  upon  perjury  by  ignoring  facts  of  human 
nature;  that  induces  perjury  on  the  part  of  some  because  of 
the  well-known  fact  of  the  perjury  of  others,  perchance  with 
the  connivance  of  officials;  that  induces  perjury  because 
honesty  would  invite  upon  one's  self  a  penalty  in  the  form  of 
an  assumption  of  a  part  of  the  tax  burden  that  rightfully 
devolves  upon  those  who  have  escaped  by  an  act  of  perjury. 
It  is,  for  example,  within  our  personal  knowledge  that  an 
aged  widow  whose  sole  means  of  support  is  the  income  from 
nine  thousand  dollars  loaned  on  mortgages  at  five  per  cent, 
(a  small  part  at  six  per  cent.),  pays  a  tax  of  three  per  cent, 
because  she  insists  upon  an  honest  declaration ;  thus  paying 
in  taxes  more  than  fifty  per  cent,  of  her  small  income  !  And 
this  is  but  one  of  hundreds  of  similar  instances  fostered  by 
the  perjury  systems  of  taxation  in  our  various  Common- 
wealths. The  iniquity  and  injustice  of  such  a  system  cannot 
be  too  strongly  emphasized.  These  iniquities  should  be 
removed  by  the  adoption  of  some  system  that  will  reach  the 
income  and  distribute  the  burden  according  to  the  income 
ability  of  the  taxpayer,  and  not  according  to  the  conscience 
of  the  individual. 

Such  a  system,  however,  is  not  to  be  found  in  the  way  of 
a  premium  upon  honest  declarations  in  the  form  of  a  lower 
tax  rate  on  certain  forms  of  intangible  property,  such  as 
mortgages — a  method  practiced  in  Pennsylvania  and  par-' 
tially  approved  by  the  Massachusetts  Tax  Commission.^ 
For  such  a  method  of  evoking  honest  declarations  is  a 
species  of  class  legislation  that  purposely  relieves  a  part  of 
the  taxpayers  from  their  proper  and  just  share  of  the  tax 
burden,  only  to  impose  it  upon  those  whose  visible  property 
prevents  their  evasion.     True,  such  a  method  may  evoke  a 

'  Tax  Commission  Report,  1897,  PP-  88-9.  Connecticut  has  adopted  a  similar 
device  which  the  Michigan  Tax  Commission  deems  "worthy  of  most  serious  con- 
sideration."    Report,  1900,  pp.  18-9. 


268  JUSTICE  IN  TAXATION  [604 

larger  sum  of  taxes  upon  a  given  form  of  property — intan- 
gible personalty — than  would  result  from  the  normal  rate 
upon  the  declaration  (with  implied  oath')  of  the  individual. 
But  such  a  concession,  or  purchased  honesty,  is  quite  as  un- 
necessary as  it  is  unjust.  For  if  such  property  must  be 
taxed  there  are  simpler  and  more  rational  methods  of  reach- 
ing it.  What  these  mothods  are  we  shall  presently  consider. 
Here  we  wish  simply  to  emphasize  the  fact  that  equal 
assessment  is  the  foundation  of  justice  in  matters  of  taxation, 
and  that  that  system  is  inherently  wrong  and  unjust  that 
seeks  honest  declaration  by  a  veiled  method  of  bribery. 

2.  Taxable  Property.  Before  discussing  the  proper 
methods  of  assessments  it  will  be  well  to  consider  the  kinds 
of  property  that  should  be  taxed  as  most  nearly  and  most 
adequately  representing  income,  the  ascertainment  of  which 
is  the  real  aim  of  the  government  and  the  real  purpose  of  the 
assessment.  It  follows,  therefore,  that  in  the  selection  of 
property  for  taxation  two  conditions  are  essential :  First,  the 
property  selected  should  be  fairly  indicative  of  income,  and, 
secondly,  it  should  be  such  that  its  value  may  be  easily 
ascertained  with  some  degree  of  truth;  for  while  income  is 
not  always  proportionate  to  the  value  of  property,  it  never- 
theless remains  true  that  upon  the  whole  the  value  is  a  fair 
index  of  income.  At  any  rate  the  value  of  property  is 
about  the  only  standard,  or  measure,  of  income  that  we 
have,  so  long  as  it  is  not  feasible  to  ascertain  the  amount  Of 
income  directly.  But  the  justice  of  such  a  standard  of 
income  depends  more  than  all  else  upon  the  equality  of  the 
assessment.  And  this  equality,  again,  depends  both  upon 
the  kind  of  property  taxed  and  upon  the  method  by  which 
it  is  assessed. 

As  to  the  kind  of  property  that  best  measures  tax  ability, 
it  is  the  common  theory  and  practice  of  our  several  States 

'  The  actual  taking  of  an  oath  is,  I  believe,  rarely  required. 


605]  PRACTICAL  JUSTICE  IN  TAXATION  269 

that  every  variety  of  property  is  equally  indicative,  and  that, 
therefore,  no  form  of  property  should  escape  assessment. 
Wagner's  devices  for  reaching  every  form  of  property  give 
sanction  to  this  theory.  In  practice,  Ohio  has  carried  the 
doctrine  to  very  near  its  extreme  limit.  The  experience, 
however,  in  all  of  our  States  is  a  clear  demonstration  of  the 
utter  failure  of  the  attempt  to  reach  ability  by  any  such 
method.  This,  indeed,  is  recognized  by  most  Tax  Commis- 
sions ^  as  one  of  the  most  patent  evils  of  our  tax  systems. 
The  fact  is  that  no  form  of  property  can  be  considered  as 
indicative  of  income,  or  ability,  of  which  it  is  morally  cer- 
tain that  only  a  small  fraction  can  be  reached.  Hence,  for 
purposes  of  taxation,  only  such  forms  of  property  should 
be  assessed  whose  value  can  be  determined  with  some  de- 
gree of  accuracy;  or,  better,  perhaps,  property  should  be 
assessed  only  in  such  form  as  lends  itself  to  the  determina- 
tion of  its  value.  This  leads  us  to  remark  that  we  believe 
the  principle  of  multipficity  of  taxes  to  be  entirely  erron- 
eous, both  in  theory  and  in  practice.  For  apart  from  the 
impossibility  of  determining  all  forms  of  property,  as  men- 
tioned above,  there  are  certain  types  of  property  that  are 
more  accurate  measures  of  income  than  other  types,  and  tax 
systems  should  seek  such  types  if  such  property  can  be 
found  and  its  value  can  be  ascertained.  Without  stopping  to 
develop  this  feature,  it  may  be  remarked  that  a  "  habitation' 
tax,"  or  a  tax  on  house  rent,  affords  an  excellent  example 
of  what  is  meant.  Such  a  tax,  too,  has  the  advantage  that 
it  can  be  easily  ascertained.  That,  within  certain  limits, 
such  a  tax  is  a  fair  measure  of  income  will  be  generally  con- 
ceded, since  the  amount  paid  for  house  rent  is,  in  general, 
proportionate  to  income.  So  true  is  this,  that  it  is  recom- 
mended by  many  French  writers  and  by  the  Italian  econo- 

'  As  Massachusetts,  Ohio,  Wisconsin  and  Michigan.     For  the  opposite  view  see 
minority  report  of  Geo.  E.  McNeill  in  Mass.  Tax  Cora.,  1897. 


270  JUSTICE  IN  TAXATION  [606 

mist  Baer.'  It  is  also  recommended  in  the  majority  report 
of  the  Massachusetts  Tax  Commission.'  Still,  it  must  be 
admitted  that  house  rent  as  a  measure  of  incomes  must  be 
confined  to  moderate  incomes.  For  the  income  of  the  multi- 
millionaire house  rent  would  be  no  measure  whatever.  Such 
a  tax  must,  therefore,  be  used  with  caution.  As  a  single 
tax,  except  upon  small  incomes,  such  a  tax  would  be  most 
unjust.  Indeed,  any  form  of  a  single  tax  must  work  injust- 
ice, largely  in  consequence  of  the  differing  effects  of  shifting 
and  incidence,  but  partly  because  of  the  differing  opportuni- 
ties for  evasion. 

The  multiple  tax  is  also  objectionable  because  of  the  cost 
of  assessment  and  collection,  thus  violating  one  of  the  car- 
dinal principles  laid  down  by  Adam  Smith,  and  since 
accepted  by  all  students  of  taxation.  Because,  then,  of  their 
double  injustice — evasions  and  unnecessary  costs — multiple 
systems  of  taxation  should  be  avoided.  But  we  have  seen 
that  the  single  tax  is  also  objectionable.  Hence  a  wise  sys- 
tem will  consist  of  such  a  selection  of  plural  taxes  as  can  be 
based  upon  forms  of  property  at  once  indicative  of  income 
and  of  easily  ascertainable  value.  What  these  forms  are  will 
appear  a  little  more  in  detail  as  we  proceed.  But  after  all, 
it  is,  perhaps,  not  so  much  the  form  of  the  property  to  be 
assessed  as  the  method  of  its  assessment  that  is  important. 

3.  Methods  of  Assessment.  The  problem  of  equitable  as- 
sessment involves  two  difficult  tasks:  The  discovery  of 
property,  and  uniformity  of  valuation.  Though  a  constitu- 
tional requirement  of  most  of  our  states,  it  is  a  notorious  fact 
that,  with  the  comparatively  few  exceptions  of  "  widow's 
mites,"  there  is  not  only  no  pretense  at  a  full  valuation,  but 
hardly  a  pretense  at   a  valuation   at  a   uniform   rate.     But 

'  Baer,  Vavere  e  V  Ifnposta,  p.  32. 

*  Report,    1897,  PP-   104-9.     Id  opposition  see  minority  report   of  McNeill, 
pp. 153-4. 


6o7]  PRACTICAL  JUSTICE  IN  TAXATION  27 1 

whatever  the  "  pretense,"  it  is  the  universal  verdict  of  Tax 
Commissions,  tax  ofificials,  and  of  students  of  our  taxing 
systems  that  uniformity  of  assessments  is  an  unrealized 
dream,  an  ideal  of  the  imagination,  to  say  nothing  of  the 
total  escape  of  certain  forms  of  property  from  all  taxation. 
Lack  of  uniformity  of  assessment  applies  to  all  forms  of 
property,  though  to  some  more  than  to  others,  depend- 
ing in  part  upon  the  successful  intrigue  and  deception  of 
owners,  in  part  upon  the  intelligence  and  honesty  of  ofificials; 
but  the  complete  escape  from  assessment  pertains  essentially 
to  intangible  property.  Let  us  consider,  briefly,  each  of 
these  problems — the  discovery  of  property  and  the  uniform- 
ity of  its  assessment. 

Concerning  the  discovery  of  real  estate  and  tangible  per- 
sonal property  little  or  no  difficulty  arises.  The  problem,  as 
we  have  seen,  attaches  to  the  discovery  of  intangible  per- 
sonal property.  How,  then,  is  this  to  be  reached?  Two 
methods  are  possible;  Either  the  compulsory  recording  of 
all  possessions  of  intangible  property — of  mortgages,  bonds, 
stocks,  etc. — similarly  to  the  recording  of  deeds,  in  order 
that  they  may  have  legal  validity;  or  the  taxing  of  such 
forms  of  property  by  taxing  their  visible  representatives — 
lands,  corporations,  etc.  With  respect  to  mortgages  either 
method  is  applicable ;  only  care  should  be  taken  to  avoid 
the  injustice  of  double  taxation  by  taxing  both  the  land  and . 
the  mortgage.  If  the  land  is  taxed  to  its  full  value  the 
mortgage  is  indirectly  taxed  and  should  not,  therefore,  be 
taxed  directly.  But  if  it  is  deemed  best  to  tax  the  land  at 
its  full  value,  less  the  value  of  the  mortgage,  and  to  tax 
the  mortgage  directly,  then  the  mortgage  should  be  recorded 
that  its  full  value  may  be  ascertained  without  difficulty,  and 
with  only  a  nominal  expense.  Other  credits  could  be  treated 
in  the  same  manner,  though  some  forms  of  personal  notes  it 
would  seem  to  be  advisable  to  exempt  from  taxation  and  to 
use  other  indices  of  income. 


272  -  JUSTICE  IN  TAXATION  [6o8 

For  the  taxation  of  stocks  and  bonds  the  only  rational  and 
effective  method  is  that  which  taxes  them   by  taxing  the 
corporation  or  other  property  which  they  represent.    Viewed 
as  a  tax  upon  income,  as  in  effect  it  is,  it  is  the  principle  of 
taxing  income  at  its  source — a  principle  extensively  practised 
in  the   English   Income   Tax.     The  extent  to  which   such 
forms  of  pro-perty  escape  assessment  is  too  notorious  to  need 
specific  proof,  there  being,  as  a  rule,  from  80  per  cent,  to 
90  per  cent,  that  wholly  escapes  taxation.'     Nor  has  any 
effective  method  yet  been  adopted,  other  than  the  English 
method,  by  which  the  income  from  such  property  can  be 
reached  for  purposes  of  taxation.     The  compulsory  record- 
ing of  stocks  and  bonds  would  be  a  decidedly  objectionable 
method,  both  on  account  of  the  expense  attending  the  re- 
cording, assessment  and  collection   (the  stocks  and  bonds 
constantly  changing  hands),  and  on  account  of  the  practical 
difficulties  of  the  enforcement  of  such  a  method ;   as  where 
the  owner  of  the  stock  or  bond  resides  in  a  State  other  than 
that  where  the  corporation  is  situated,  or  the  stock  or  bond 
recorded.     On  the  other  hand,  it  is  a  simple  matter  to  ob- 
tain from  corporations  the  amount  of  their  earnings,  of  their 
capital,  or  of  stocks  and  bonds ;  and  the  collection  of  the  tax 
directly  from  the  corporation  has  the  merit  of  involving  the 
minimum  of  expense.     It  is  the  absence  of  a  rational  system 
for  the  taxation  of  this  form  of  property — the  mere  pretense 
of  its  taxation — that  has  given  to  the  tax  systems  of  the 
American  States  their  well-earned  opprobrium — begetters  of 
perjury,  fraud  and  injustice.     But  by  the  simple  expedient 
of  taxing  at  the  source,  order  and  justice  may  come  out  of 
the  present  chaos  and   injustice.     We  shall  return  to  this 
subject  later  in  another  connection. 

'See,  for  example,  Ely,  Taxation  in  Amencan  Ciiies ;  Seligman,  "  The  Per- 
sonal Property  Tax"  (in  Essays) ;  and  the  Reports  of  the  Tax  Commissions  of 
Massachusetts,  Pennsylvania,  Ohio,  Michigan,  Wisconsin  and  Colorado. 


6o9]  PRACTICAL  JUSTICE  IN  TAXATION  273 

We  have  said  that  the  assessment  of  tangible  personal 
property  and  of  real  estate  affords  but  little  difficulty.  This, 
however,  is  true  only  theoretically.  Being  tangible,  it  is  true, 
indeed,  that  it  is  theoretically,  nay,  in  a  sense,  practically 
possible  to  discover  these  forms  of  property;  yet  it  is  a 
notorious  fact  that  both  forms  are  very  unequally  assessed. 
Particularly  is  this  true  of  tangible  personal  property  in  the 
form  of  household  goods,  but  a  small  fraction  of  which  is 
reached  by  the  tax  assessor.  The  chief  difficulty  of  reach- 
ing this  form  of  property  hes  in  the  fact  that  every  home  is 
felt  to  be  sacred  from  the  intrusions  of  government  officials, 
a  sentiment  respected  by  the  officials  themselves.  The 
result  is  that  the  official  assessor  must  rely  upon  the  tax- 
payer's declaration,  a  very  unsafe  criterion  as  we  have  seen. 
Only  injustice  can  result  from  such  a  method.  The  only 
feasible  solution  would  seem  to  be  the  total  exemption  of 
this  form  of  property  from  taxation.  And  this  suggestion 
will  appear  all  the  more  rational  when  we  consider  that  the 
purpose  of  taxing  any  form  of  property  is  to  reach  the  in- 
come of  which  the  property  is  but  a  symbol.  True,  house- 
hold goods  constitute  such  a  symbol,  or  index,  but  only  in 
a  very  general  way,  and  then  only  for  moderate  incomes. 
But  there  are  other  and  more  certain  indices  of  income  which 
will  serve  the  purpose  far  more  satisfactorily.  To  obtain 
substantial  justice  it  is  not  necessary  to  seize  upon  every 
possible  index  of  income ;  but,  as  we  have  seen,  only  such 
as  are  at  the  same  time  most  indicative  and  most  easily 
applied. 

The  case  is  quite  different  with  real  estate.  This  is  upon 
the  whole  (though  there  are  exceptions)  a  just  index  of  in- 
come, and  there  are  neither  sentimental  nor  technical  reasons 
against  its  assessment.  The  problem  here  is  essentially 
one  of  the  intelligence  and  honesty  of  the  assessor,  his  ability 
to    estimate   the   value    of    property  and    to   withstand   the 


274  JUSTICE  IN  TAXATION  [6lO 

temptations  of  bribery.  Nor  is  this  difficulty  confined  to 
real  estate.  Precisely  the  same  difficulties  are  to  be  met 
with  in  the  assessment  of  corporations,  particularly  railroad 
corporations.'  In  the  case  of  real  estate,  it  is  the  require- 
ment of  most  of  our  States  that  it  shall  be  assessed  to  the 
full  extent  of  its  value,  though  it  is  not  uncommon  to  find  it 
assessed,  even  within  the  same  city,  anywhere  from  40  per 
cent,  to  75  per  cent,  of  its  value.^  Such  an  inequality  of 
assessment  is  most  unjust  in  its  effects,  being  equivalent,  in 
extreme  cases,  to  the  imposition  of  a  tax  upon  some  greater 
by  100  per  cent,  than  the  tax  upon  others.  And,  by  the 
way,  we  need  only  to  call  attention  to  this  intentional  under- 
valuation of  real  estate  to  emphasize  the  gross  injustice  of 
taxing  the  poor  widow's  mortgage  or  bond  to  the  full 
amount  of  her  honest  declaration.  And  yet  there  is  a 
rational  ground  for  the  sixty  per  cent,  valuation — that  by 
decreasing  the  amount  of  the  tax  valuation,  with  a  conse- 
quent increasing  of  the  tax  rate,  there  will  result  a  tendency 
to  check  extravagant  appropriations  and  squandering  of  the 
public  funds.  But  whatever  the  basis  of  the  assessment  it 
should  be  uniform.  The  real  difficulty,  however,  is  to 
obtain  an  equal  assessment  of  all  property  on  any  accepted 
basis,  of  real  estate  as  well  as  of  other  forms  of  property. 
Yet  the  taxation  of  real  estate  is  demanded  on  poHtical, 
economic,  and  ethical  grounds. 

'  In  the  decennial  appraisement  of  Ohio  in  1900  the  railroad  property  in  many 
counties  was  assessed  at  about  12  per  cent,  of  its  value.  Notably  was  this  so  in 
Cuyahoga  county  (Cleveland).  This  condition  was  made  possible  by  a  vicious 
system  of  appraisement  (by  county  auditors)  which  lent  itself  to  a  system  of  indi- 
rect bribery  through  the  grant  of  railroad  passes  to  the  assessors — the  auditors. 

*  Such  was  the  fact  in  the  appraisement  of  real  estate  in  Cleveland  in  1900,  as 
the  writer  was  reliably  informed  by  a  real  estate  owner  who  made  personal  inqui- 
ries of  the  different  assessors.  It  was  within  the  personal  knowledge  of  the  same 
authority  that  in  the  assessment  of  1890  large  owners  of  real  estate  got  low  assess- 
ments by  bribing  the  assessors  through  a  third  party. 


6ii]  PRACTICAL  JUSTICE  IN  TAXATION  275 

What,  then,  is  the  solution  of  the  problem — i.  e.,  of  uni- 
form and  honest  assessments?  The  remedy  lies  very 
largely  with  the  taxpayers  themselves.  For  first  and  fore- 
most is  the  necessity  of  honest  and  efficient  assessors,'  with- 
out which  any  system  of  taxation  may  be  made  to  work 
injustice,  while  with  them  any  systems  in  themselves  defec- 
tive may  be  made  to  realize  substantial  justice.^  But  while 
very  much  depends  upon  the  character  of  the  assessors,  the 
methods  of  assessment  are  also  of  much  importance.  For 
however  honest  and  intelligent  the  assessors,  there  can  be 
only  a  chance  equality  of  assessment,  unless  there  is  some 
common  basis  for  the  determination  of  values  and  some 
common  agreement  for  the  percentage  of  valuation.  What 
method  will  best  accomplish  the  desired  result  we  cannot 
stop  to  discuss.  We  may  note,  however,  that  it  lies  in  the 
direction  of  a  more  centralized  control  of  assessments,  the 
degree  of  centralization  being  determined  by  the  character 
of  the  property  assessed :  the  taxing  area  for  real  estate 
being  the  township,  county  or  city ;  that  for  railroads  and 
other  corporations  the  state.  There  should  also  be  fixed 
and  uniform  rules  for  determining  values  and  a  rigid  enforce- 
ment of  some  fixed  percentage  of  valuation.  But  so  long  as 
the  matter  rests  very  largely  upon  the  judgment  of  in- 
dividual, local  assessors,  the  pretense  of  justice  becomes  a 
farce.  With  some  such  system  as  suggested,  and  with. 
intelligent  and  honest  assessors,  a  fair  approximation  of  jus- 
tice may  be  attained.  But  the  methods  of  assessment  are 
closely  allied  with  a  system  of  taxation,  to  which  let  us  next 
turn  our  attention. 

^  See  last  note. 

'  Cf.  Report  of  Professor  Bolles  in  Report  of  Pennsylvania  Revenue  Commis- 
sion 0/1887,  P'  ^57- 


276  JUSTICE  IN  TAXATION  [6i2 

II.  The  True  Tax  System 

In  the  preceding  discussion  it  has  been  pointed  out  that  a 
just  system  of  assessment  involves  a  direct  assessment  by 
the  taxing  authorities,  a  consequent  wise  selection  of  the 
kinds  of  properties  to  be  taxed,  and  methods  of  assessment 
that  shall  reach  all  assessable  property  equally.  Without 
stopping  to  discuss  these  methods  in  any  detail  it  was  indi- 
cated that  they  should  be  such  as  to  eliminate,  as  far  as 
possible,  any  personal  factor  within  the  same  taxing  political 
unit — eliminate,  that  is,  the  individual  judgments  of  different 
assessors  as  well  as  the  personal  declarations  of  the  assessed ; 
thus  diminishing,  on  the  one  hand,  bribery  and  corruption, 
and,  on  the  other  hand,  deception  and  perjury.  It  was  also 
pointed  out  that  in  the  choice  of  taxable  property  three 
things  must  be  considered :  The  indicativeness  of  the  prop- 
erty as  a  measure  of  income — the  ultimate  source  of  all 
taxes;  and  the  readiness  with  which  the  taxed  property 
lends  itself  to  equitable  assessment ;  and  finally,  that  this 
readiness,  or  equality  of  assessment  (and,  we  may  add,  of 
taxation),  depends  very  largely  upon  the  tax  system;  or,  in 
other  words,  upon  the  kind  of  taxes  and  the  methods  of  tax- 
ation, and  the  distribution  of  the  different  taxes  among  the 
different  political  taxing  units. 

With,  then,  a  wise  system  of  taxation — a  proper  choice  of 
subjects  and  methods,  and  a  proper  distribution — it  is  be- 
lieved that  much  would  be  accomplished  in  the  way  of  re- 
moving the  glaring  absurdities  and  inequalities  of  present 
methods,  and  for  the  practical  introduction  of  the  principle 
of  "  equality  of  burden  "  as  based  upon  "  ability,"  so  far,  at 
least,  as  ability  is  measured  by  income.  A  brief  considera- 
tion of  such  a  system,  which  we  must  confine  to  the  barest 
outline,  will  supplement  our  remarks  upon  assessment,  and 
at  the  same  time  point  out  what  be  believe  to  be  a  rational 
system  of  taxation  that  will  at  once  realize  substantial  jus- 


• 


6i3]  PRACTICAL  JUSTICE  IN  TAXATION  277 

tice  in  taxation  and  come  within  the  realm  of  the  practicable 
— essentially  conform  to  the  ideals  of  justice  and  to  the  re- 
quirements of  practical  application.  Let  us  consider,  then, 
the  outline  of  such  a  system. 

I .  Subjects  and  Methods  of  Taxation.  We  have  already 
indicated  the  principles  that  should  determine  the  choice  of 
subjects — i.  e.,  of  property — for  taxation,  and  also  the  rela- 
tion which  this  choice  bears  to  equitable  assessments,  which 
will  appear  further  as  we  proceed.  Our  present  purpose  is 
to  give  an  outline  of  the  more  important  subjects  for  tax- 
ation that  will  realize  the  requirements  of  these  principles. 
No  attempt  will  be  made  to  weigh  the  pros  and  contras  of 
dififerent  kinds  of  taxes.  Our  aim  shall  be  positive  and  con- 
structive, rather  than  negative  and  by  elimination.  Yet  we 
may  again  emphasize  the  fact  that  no  rational  system  of  tax- 
ation can  contain  a  "general  property  tax"  which  treats 
alike  taxes  on  real  estate,  on  tangible,  and  on  intangible 
property.  Nor  is  it  necessary  to  add  to  what  has  already 
been  said  in  justification  of  this  conviction.  We  shall, 
therefore,  assume  the  abandonment  of  the  "  general  property 
tax,"  as  such,  in  compliance  with  the  logic  of  experience 
and  the  all  but  universal  opinion  of  expert  testimony.'  This, 
however,  does  not  imply  that  some  forms  of  property  are  to 
escape  taxation  altogether.  On  the  contrary,  so  far  as  they 
are  proper  subjects  for  taxation  they  will  be  taxed  equally- 
(at  least  more  equally),  and  will  be  taxed  in  fact  and  not 
merely  in  name,  but  under  a  different  name  and  by  dififerent 
methods  than  those  now  in  vogue. 

The  system  of  taxes  which  we  have  in  mind  may,  perhaps, 
best  be  outlined  by  a  consideration  of  taxes  on  consumption, 
on  real  estate,  on  personal  property  (tangible  only),  on 
mortgages,  on  corporations  and  on  inheritances;  though 
special  assessments,  fees  and  fines  should  have  their  place 

*  As  Dunbar,  Taussig,  Seligman,  Adams  and  Ely. 


278  JUSTICE  IN  TAXATION  [6 1 4 

in  the  system.  These,  however,  have  for  their  purpose  local 
improvements,  special  benefits,  or  penalties  and  must,  there- 
fore, be  passed  over  in  a  scheme  for  general  taxation  based 

upon  ability.' 

( I )  Taxe^  on  Consumption.  If  it  were  true  that  all  in- 
comes are  spent  in  personal  satisfactions  and  enjoyments 
there  would  be  much  to  be  said  for  the  contention  of  Sir 
WilHam  Petty:  that  "a  man  is  actually  and  truly  rich 
according  to  what  he  eateth,  drinketh,  weareth,  or  in  any 
other  way  really  and  actually  enjoyeth  ;"  and  that,  therefore, 
•'  every  man  ought  to  contribute  according  to  what  he  taketh 
to  himself,  and  actually  enjoyeth."  =  But  such  a  condition  of 
things  would  be  true  only  under  the  circumstance  that  the 
total  income  was  spent  in  this  manner,  a  circumstance  that, 
as  a  rule,  would  happen  only  with  moderate  incomes. 
Indeed,  with  the  enormous  development  of  savings  banks 
and  other  means  for  making  small  investm.ents — stocks, 
bonds,  etc. — it  does  not  apply  universally  to  even  moderate 
incomes.  And  yet  with  moderate  incomes  (especially  with 
the  more  moderate  incomes)  expenditure  is  a  very  fair  index 
of  income,  and  a  tax  on  expenditure  a  very  fair  approxima- 
tion to  justice.  But  such  a  tax  would  reach  only  a  fragment 
of  the  larger  incomes,  and  hence  is  objectionable  as  a  single 
tax;  and,  besides,  has  the  further  objection  that  there  are 
many  technical  difficulties  in  the  way  of  its  execution,  so  far 
as  there  should  be  an  attempt  to  reach  every  possible  form 
of  consumption. 

But  while  there  should  be  other  forms  of  taxes  to  reach 
the  parts  of  income  that  do  not  find  their  way  to  personal 
"enjoyments,"    a  tax  on  consumption  is  a  legitimate   and 

'  For  a  full  report  of  these  sources  of  revenue  see  Seligman,  Essays,  ch.  ix.  For 
criticism  of  Prof.  Seligman's  "  special  assessments  "  and  "  fees,"  see  Bastable, 
Public  Finance,  "p^.  153-6. 

'  letty,  A  Treatise  of  Taxes  and  Contributions,  p.  83. 


6i5]  PRACTICAL  JUSTICE  IN  TAXATION  279 

necessary  part  of  every  tax  system  that  seeks  to  reach 
income  by  the  indirect  method,  since  in  all  cases  consump- 
tion does  afford  some  index  of  income ;  in  many  cases  a 
fairly  perfect  index.  But  such  a  tax  should  be  applied  indi- 
rectly, as  by  customs  duties,  taxes  on  manufactures  and  cor- 
porations, and  taxes  on  real  estate — lands  and  houses — not 
only  to  realize  economy  in  assessments  and  collections  and 
the  Smithian  canon  of  "convenience"  in  time  of  payment; 
but  also  to  avoid  any  possible  antagonisms  that  might  arise 
on  account  of  the  strong  popular  sentiment  against  personal 
inquisitions  on  the  part  of  the  government,  as  a  violation  of 
individual  liberties.  Such  a  tax,  too,  lends  itself  very 
fittingly  to  the  higher  taxation  of  larger  incomes  by  means 
of  heavy  taxes  on  articles  of  luxury.  To  carry  out  this  pur- 
pose, however,  would  require  the  non-taxation  of  articles  of 
necessity  with  a  constantly  increasing  rate  for  articles  of 
decreasing  necessity.  But  it  must  be  admitted  that  no  such 
scientific  system  is  possible  with  protective  tariffs. 

But  though  it  may  not  be  possible  to  realize  the  ideal 
system  of  consumptive  taxes,  they  should  form  an  essential 
feature  in  any  tax  system ;  not  only  for  the  reasons  given 
above,  but  also  for  political  reasons.  For  though  a  direct 
tax  is  important  as  tending  to  stimulate  an  active  interest  in 
the  government,  and  to  check  extravagance  in  expenditures, 
an  attempt  to  raise  all  public  revenue  from  direct  taxation 
would  result  in  social  revolution,  or  a  niggardliness  that 
would  effectively  cripple  the  government  in  the  performance 
of  its  functions.  For,  however  much  we  may  philosophize 
about  taxes,  there  is  much  truth  in  the  statement  made  by 
Mr.  Buck,  of  Kentucky,  in  the  early  debates  in  Congress  on 
the  subject  of  taxation:  That  "taxes  are  always  disagree- 
able, and  it  is  with  reluctance  that  people  consented  to 
.pay  any,  except  they  saw  advantage  arising  from  the  pay- 
ment of  them  greater  than  to  counterbalance  the  evil  of  pay- 


280  JUSTICE  IN  TAXATION  [6i6 

ing."  ^  Hence  the  importance  of  supplementing  direct  taxes 
with  indirect  taxes,  particularly  in  the  taxing  system  of  a  na- 
tional government.  It  is  not  less  true  that  the  indirect  tax 
should  be  supplemented  by  direct  taxes  ;  in  part  to  offset  the 
uncertainty  of  the  incidence  of  indirect  taxes,  in  part  because 
of  their  greater  certainty  and  economy,  and  in  part  because 
of  their  direct  relation  to  the  government.  Most  important 
among  these  are  property  taxes  and  taxes  on  inheritances. 
We  omit  the  income  tax  because  of  its  admitted  impractica- 
bility. Let  us  briefly  consider  the  property  and  inheritance 
taxes  viewed  as  essential  parts  of  a  good  tax  system. 

(2)  Taxation  of  Real  Estate.  The  taxation  of  real  estate 
is  theoretically  simple  enough.  It  is  one  of  the  oldest,  as 
well  as  the  most  universal,  of  all  taxes.  Indeed,  the  fact  that 
real  estate  is  a  source  of  income,  cannot  be  hidden  from  the 
assessor,  and  has  an  immediate  relation  to  and  dependence 
upon  the  expenditures  of  government,  makes  it  a  peculiarly 
fitting  subject  for  taxation.  And  yet,  as  we  have  seen,  under 
present  systems  there  is  no  guaranty  of  an  equality  of  assess- 
ments and  of  burdens,  either  between  individuals  or  between 
different  political  units.  Nor,  for  the  former  inequality,  is  there 
any  effective  remedy  other  than  the  adoption  of  a  uniform 
basis  for  assessments,  a  larger  use  of  ofificial  records — deeds, 
bequests,  mortgages,  etc. — and  the  choice  of  men  of  char- 
acter and  intelligence  for  assessors ;  while  the  remedy  for 
the  latter  inequality — that  between  different  political  units — 
is  to  be  found  very  largely  in  an  entire  rearrangement  and 
readjustment  of  the  tax  system,  on  the  basis  of  greater  fiscal 
independence  of  the  different  political  divisions  within  the 
same  system  of  government — a  question  which  will  come  up 
for  consideration  later. 

Upon  the  justice  of  levying  upon  real  estate  for  purposes 

^Annals  of  Conp'ess,  4th  Cong.,  2d  Sess.,  p.  1862.     Cf.  also  speech  of  Mr. 
Richardson,  of  Tennessee,  14th  Cong.,  ist  Sess.,  p.  84. 


6l7]  PRACTICAL  JUSTICE  IN  TAXATION  281 

of  public  revenue  there  is"  no  difference  of  opinion.  It  con- 
forms to  the  ideal  of  taxation  according  to  ability,  since  the 
value  of  real  estate  is  determined  very  largely  by  its  income- 
producing  power,  if  we  omit  the  exceptional  cases  of  the 
speculative  holding  of  land.  With  this  exception,  it  is  in  the 
main  true  that  land,  buildings  and  machinery,  and  dwelling 
houses  have  their  value  fairly  represented  in  the  capitalized 
amount  of  the  income  derived  from  them.  Hence,  omitting 
as  we  do  in  the  present  discussion  the  question  of  progres- 
sive and  differential  rates,  a  tax  based  upon  the  valuation  of 
such  forms  of  property  is  a  fair  approximation  of  a  tax  based 
upon  the  derived  income,  and  so  likewise  a  fair  approxima- 
tion of  justice.  That  such  taxes  may  and  do  become,  in 
part  at  least,  taxes  upon  consumption  does  not  lessen  their 
effectiveness  or  their  justice.  With  a  rational  and  stable 
system  of  taxation,  the  burden  will  adjust  itself  fairly  in  the 
long  run.  To  this  end,  however,  it  is  important  that  other 
forms  of  property  should  be  reached. 

(3)  Taxation  of  Personal  Property.  A  sound  and  just 
system  of  taxation  must  include  taxes  whose  ultimate  inci- 
dence shall  bear  upon  productive  personalty,  as  well  as  those 
that  bear  upon  productive  realty.  To  reach  personal  in- 
comes it  may  be  necessary,  also,  to  tax  some  forms  of  un- 
productive personalty ;  unproductive,  that  is,  to  the  con- 
sumer in  the  sense  that  Adam  Smith  used  the  term.  In- 
deed, such  taxes  are  taxes  upon  consumption,  which  have 
already  been  sufficiently  considered.  Yet  we  may  perhaps 
add,  that  to  us  there  is  some  question  whether  household 
goods  should  not  be  exempted  from  taxation ;  not  only  be- 
cause they  are  at  best  but  very  roughly  indicative  of  income, 
but  because  such  a  tax  must  always  be  upon  but  a  nominal 
part  of  the  total  amount,  and  that,  too,  in  very  unequal  por- 
tions ;  must,  that  is,  so  long  as  public  sentiment  remains  as 
it  is  concerning  the  sacredness  and   privacy  of  the  home. 


282  JUSTICE  IN  TAXATION  [6i8 

Moreover,  there  is  little  of  a  scientific  character  in  a  system 
of  taxation  that  places  unproductive  personalty,  which  is 
only  roughly  indicative  of  income,  upon  exactly  the  same 
basis  as  productive  property. 

On  the  other  hand,  such  forms  of  tangible  personalty  as 
farming  implements  and  live  stock  may  well  be  included  in 
the  tax  system,  not  only  as  indicative  of  income  but  as  also 
productive  of  income;  while  they  are  at  the  same  time  easily 
assessable ;  in  fact,  for  the  reasons  just  given,  tangible  person- 
alty in  general  should  be  included  in  any  well  rounded  sys- 
tem of  taxation,  and  taxed  in  the  same  direct  manner  as 
realty.  The  same  cannot  be  said  of  intangible  personalty. 
As  already  sufficiently  shown,  every  attempt  of  this  nature 
leads  to  the  grossest  inequalities  (to  say  nothing  of  perjur- 
ies), while  its  enforcement  is  a  practical  impossibility;  this 
impossibility,  indeed,  being  the  occasion  of  the  inequalities. 
Some  other  method  than  the  direct  one  must,  therefore,  be 
found  for  reaching  the  income  that  has  its  source  in  this 
form  of  property ;  or,  rather  in  the  forms  of  property  that 
stand  back  of  and  are  represented  by  the  intangible  forms — 
mortgages,  stocks,  bonds,  etc.  Such  a  method,  and  indeed 
the  only  practicable  method,  is  to  be  found  in  the  taxation 
of  this  class  of  income  at  its  source.  In  this  way  alone  can 
evasion  be  avoided  and  the  burden  equitably  distributed. 
As  the  form  of  property  under  consideration  is  most  largely 
represented  by  mortgages  and  by  stocks  and  bonds,  we  may 
consider  briefly  the  best  method  of  taxing  these  at  their 
source,  which  will  indicate  the  true  method  of  taxing  the  in- 
come from  all  forms  of  intangible  personal  property. 

(4)  Taxatio7i  of  Mortgages.  The  proper  method  of  tax- 
ing mortgages  has,  perhaps,  been  sufficiently  indicated  in 
our  discussion  of  methods  of  assessment.  Either  the  real 
estate,  which  is  represented  by  the  mortgage  and  is  the 
source  of  its  income,  should  alone  be  taxed,  leaving  mort- 


6l9]  PRACTICAL  JUSTICE  IN  TAXATION  283 

gagor  and  mortgagee  to  make  the  proper  adjustment  of 
interest;  or,  if  the  mortgage  is  taxed,  the  tax  should  be 
based  upon  a  compulsory  court  record,  similar  to  the  re- 
cording of  deeds.  At  the  same  time,  the  amount  of  the 
mortgage  should  be  deducted  from  the  value  of  the  real 
estate  that  is  back  of  it,  according  to  some  such  methods  as 
those  in  vogue  in  Massachusetts  and  California/  There  is 
but  one  source  of  income,  and  therefore  but  one  source  of 
ability.  Hence,  to  tax  both  the  land  and  the  mortgage  is  to 
inflict  the  patent  injustice  of  a  double  taxation  on  that  part 
of  the  income  from  land  that  goes  to  pay  the  interest  of  the 
mortgage.  The  better  method  would  seem  to  be  to  tax  the 
land  and  exempt  the  mortgage,  since  the  land  is  the  direct 
source  of  the  tax-paying  power.  Certain  it  is,  at  any  rate, 
that  the  present  methods  of  taxing  mortgages  are  open  to  so 
many  possibilities  of  evasion  that  only  the  most  flagrant 
inequalities  can  result,  the  amount  of  the  mortgages  taxed 
being  directly  proportional  to  the  sensitiveness  of  the  con- 
sciences of  the  mortgage  holders. 

(5)  Taxation  of  Corporations.  A  still  more  important 
form  of  intangible  personalty  is  to  be  found  in  corporate 
stocks  and  bonds,  whose  income-producing  power  is  to  be 
found  in  the  corporation.  In  fact,  the  net  earnings  of  cor- 
porations are,  in  the  main,  distributed  to  the  holders  of  these 
stocks  and  bonds.  If,  then,  we  levy  a  tax  upon  the  net 
earnings  of  a  corporation,  we  thereby  impose  a  tax  upon  the 
incomes  of  its  stocks  and  bonds  at  their  source.  The  ease 
with  which  the  imposition  of  such  a  tax  may  be  effected, 
and  the  unquestioned  impossibility  of  reaching  this  class  of 
income  by  the  direct  method,  make  the  method  of  taxing  at 
the  source  the  only  rational  and  scientific  method  of  taxing 
income  of  this  character. 

'See  Report  of  Massachusetts  Tax  Commission,  1897,  P-  7>  ^nd  Plehn,  The 
General  Properly  Tax  in  California  (Economic  Studies  of  Am,  Econ.  Ass.), 
pp.  126-7  ^^^  *48' 


284  JUSTICE  IN  TAXATION  [620 

The  principle  of  taxing  incomes  at  their  source  is  now 
very  generally  recognized  by  economists  to  be  the  only 
sound  principle  of  public  finance.  This  is  done  in  the  case 
of  real  estate,  and  it  is  believed  that  the  same  principle 
should  be  applied  in  the  taxation  of  intangible  personalty. 
Not  only  is  this  the  most  practicable  and  most  effective 
method,  but  it  is  the  most  economic,  entails  the  least  incon- 
veniences, and  is  the  most  equitable  in  its  results.  By  elimin- 
ating the  intangible  forms  of  property  and  the  personal 
equation  in  assessments,  evasions  would  become  practically 
impossible;  while  by  reaching  the  whole  income  there  is 
secured  a  uniformity  in  the  distribution  of  the  tax  burden. 
And  since  such  a  tax  necessarily  bears  upon  individual  in- 
comes, it  meets  the  ethical  requirement  of  the  imposition  of 
a  tax  upon  the  source  of  ability. 

Granted,  then,  the  principle  of  taxing  the  incomes  from 
stocks  and  bonds  at  their  soujce,  and  that  individual  tax 
ability — so  far  as  conditioned  by  such  holdings — is  reflected 
in  the  corporate  ability — i.  e.,  in  the  corporate  net  income — 
the  question  arises :  How,  or  in  what  manner,  may  this  cor- 
porate ability  be  most  effectively  and  most  efificiently 
reached?  Our  answer  to  this  question  must  be  very  brief, 
and  somewhat  dogmatic.  The  problem  of  the  taxation  of 
corporations  is  too  large  and  too  complex  to  be  treated  with 
any  fulness  in  the  closing  chapter  of  a  treatise  on  the  prin- 
ciples of  justice  in  taxation.' 

Thirteen  different  methods  are  given  by  Professor  Selig- 
man  for  taxing  corporations.'  These  are  reduced  to  three 
by  Professor  Adams :  as  based  upon  property,  upon  the 
volume    of   business,    or    upon    earnings.^     Both,    however, 

^  For  a  thorough  treatment  of  the  subject  see  Seligman,  "  Taxation  of  Corpora- 
tions," Essays,  ch.  6,  7  and  8.  For  an  excellent  brief  statement  see  H.  C.  Adams, 
Public  Fifiatice,  pp,  446-466. 

*  Seligman,  op,  cit.,  pp.  177-9.  '  Adams,  op.  cit.,  p.  454. 


62l]  PRACTICAL  JUSTICE  IN  TAXATION  285 

agree  that  the  true  measure  of  corporate  ability  is  to  be 
found  in  the  net  income  of  the  corporation ;  and  it  must  be 
evident  that  there  can  be  no  other  standard.  The  limitation 
made  by  Professor  Adams  in  the  case  of  railroads :  that  the 
tax  should  be  based  upon  the  net  "income  from  operation," 
is  important  only  in  calling  attention  to  the  fact  that  double 
taxation  should  be  avoided  in  the  case  of  leased  corpora- 
tions.' Undoubtedly,  if  the  leased  corporation  is  taxed,  the 
basis  of  a  corporation  tax  should  be  the  "  earnings  from 
operation;  "  but  if  only  the  operating  companies  are  taxed, 
the  basis  of  the  tax  should  be  based  upon  the  total  net  in- 
come. In  any  case  the  taxable  net  income  should  include 
the  gross  earnings,  minus  operating  expenses ;  but  not 
deducting  the  outlay  for  interest,  rent,  taxes,  or  improve- 
ments.^ 

Accepting,  then,  corporate  net  income — not  the  net  in- 
come to  stockholders  and  bondholders — as  the  true  basis  of 
corporation  taxes,  it  ddes  not  follow  that  the  desired  end 
can  be  reached  best,  in  all  cases,  by  imposing  the  tax 
directly  upon  the  net  income.  Whether  or  not  this  is  the 
best  method  must  depend  upon  the  practical  possibility  of 
uniform  and  fixed  rules  of  accounting.  But  according  to 
Professor  Adams,^  such  a  system  of  accounting  is  prac- 
ticable. We  may,  therefore,  accept  the  net  income  basis  as, 
upon  the  whole,  afTording  both  the  best  theoretical  and  best 
practical  basis  for  corporate  taxation.  But  if  in  any  parti- 
cular case  such  a  method  is  not  practicable,  we  must  agree 
with  Professor  Seligman  that  a  tax  based  upon  the  market 
value  of  stocks  and  bonds  will  most  nearly  realize  the  ends 
of  justice,  being,  besides,  "  certain  and  simple  of  enforce- 
ment."'* It  is  only,  or  chiefly,  because  the  market  values  of 
stocks   and   bonds  are  not  always  determined  by  their  net 

'  Adams,  ii>id.,  pp.  460-1.     C/.  Seligman,  Essays,  p.  199. 

«  C/.  ibid.,  p.  461.  '  Ibid.  *  Essays,  p.  212. 


286  JUSTICE  IN  TAXATION  [622 

incomes,  that  this  method  of  taxing  corporations  is  not  al- 
ways the  most  just,  as  it  is  the  most  simple. 

The  correct  determination  of  the  basis  of  assessment, 
however,  is  by  no  means  the  least  difficult  problem  in  the 
taxation  of  corporations.  There  would,  indeed,  be  little 
difficulty  if  the  tax  were  aimed  at  the  corporation  per  se,  or 
if  stockholders  and  bondholders  lived  wholly  within  the  tax 
area  of  the  corporation.  But  from  our  present  view-point, 
the  subject  of  the  tax  is  not  the  corporation,  but  its  indi- 
vidual stockholders  and  bondholders ;  who,  moreover,  are 
scattered  throughout  various  areas  of  taxation.  Yet  theoret- 
ically, at  least,  the  problem  is  easy  of  solution.  For  all  that 
is  necessary  is  that  there  should  be,  among  the  different 
commonwealths  concerned,  a  uniformity  in  the  methods  of 
taxation,  based  upon  a  common  agreement  respecting  the 
taxation  of  resident  holders  of  stocks  and  bonds  of  foreign 
corporations,  and  of  foreign  holders  of  the  stocks  and  bonds 
of  domestic  corporations. 

The  only  ethical  or  logical  basis  for  such  agreement  is, 
that  each  commonwealth  should  tax  only  such  portion  of  the 
net  profits  as  are  earned  within  its  borders ;  this  portion 
being  determined,  for  practical  reasons,  on  the  basis  of  mile- 
age, gross  earnings,  amount  of  business,  or  capital  within 
the  commonwealth,  according  to  the  nature  of  the  industry. 
In  other  words,  the  net  income  taxed  within  a  given  com- 
monwealth should  bear  the  same  proportion  to  the  total  net 
income  that  the  mileage,  gross  earnings,  etc.,  within  the 
commonwealth  bears  to  the  total  mileage,  or  gross  earnings, 
etc.  The  assumption  here  is,  that  the  net  income  within  any 
area  is  proportional  to  the  mileage,  earnings,  business  or 
capital  within  the  same  area;  and  if  the  choice  of  these 
methods  is  wisely  made,  according  to  the  character  of  the 
corporation,  substantial  justice  will  be  attained,  though  only 
if  there  is  uniformity  throughout  all  of  the  commonwealths. 


623]  PRACTICAL  JUSTICE  IN  TAXATION  287 

Such,  in  brief,  is  the  ideal  of  corporate  taxation,  as  a 
means  of  reaching  the  individual  abilities  of  stockholders  and 
bondholders.  Practical  obstacles  in  the  way  of  state  consti- 
tutions, and  the  uncertainties  of  "  politics,"  do  not,  however, 
promise  a  speedy  realization.  Nor  does  this  doubt  grow  less 
when  we  contemplate  the  fact  that  not  one  of  the  American 
States  has  ever  adopted  the  recommendations  of  its  various 
expert  Tax  Commissions.  Nevertheless,  the  practice  in 
some  of  the  states  is  evidence  of  a  tendency  in  the  right 
direction.'  But  for  some  time,  at  least,  we  shall  have  to  put 
up  with  the  injustice  of  double  taxation;  an  injustice  that  is, 
perhaps,  very  largely  nullified  in  the  fact  of  extensive  eva- 
sions under  present  methods  of  taxing  stocks  and  bonds. 

(6)  Taxation  of  Inheritances.  Concerning  the  inherit- 
ance tax  we  may  be  very  brief.  It  is  now  very  generally 
justified  and  very  generally  adopted.  We  may  consider  it 
from  two  points  of  view :  That  of  the  decedent  and  that  of 
the  heir.  Viewed  with  respect  to  the  ability  of  the  former,  a 
taSnipon  the  inheritance  must  find  its  justification  in  the 
assumption  that  past  taxes  have  been  evaded,  but  have  held 
a  permanent  lien  upon  the  property.  While  there  is  much 
ground  for  this  theory,^  it  applies  only  to  personal  property, 
and  even  then  is  but  the  crudest  approximation  to  justice, 
since  the  amount  of  the  evasion  is  an  incalculable  quantity .3 

The  more  correct  point  of  view,  however,  is  undoubtedly 
that  of  the  heir,  or  legatee.  And  from  this  viewpoint  the 
justice  of  the  tax  is  to  be  found  in  the  increased  ability  aris- 
ing from   the   inheritance,   or  legacy.     According  to  both 

1  For  examples  and  a  fuller  discussion  of  the  interstate  taxation  of  corporations, 
see  Seligman,  Essays,  pp.  223-254. 

*  A  lady  in  New  York,  the  sole  heir  to  her  father's  estate,  told  the  writer  that 
her  father  never  paid  a  personal  property  tax,  though  at  the  time  of  his  death  he 
held  stock  in  ten  different  banks. 

'  Cf.  Seligman,  Essays,  p.  131. 


288  JUSTICE  IN  TAXATION  [624 

Professor  Seligman  and  Doctor  West,  this  ability  arises  from 
the  fact  that  the  inheritance  should  be  regarded  as  an  "  acci- 
dental income  " — measuring  ability  like  other  incomes — and 
the  tax  as  an  "accidental  income"  tax.^  This  is  no  doubt 
the  true  attitude  to  take  in  the  case  of  small  inheritances  that 
are  spent  in  the  manner  of  regular  incomes.  But  to  us  the 
argument  is  not  so  evident  with  respect  to  the  inheritance  of 
productive  property,  from  which  there  is  the  enjoyment  of 
only  the  annual  income.  From  the  viewpoint  of  income,  the 
ability  of  the  heir  is  increased,  practically  at  least,  only  by 
the  amount  of  the  increase  of  his  annual  income ;  and,  theo- 
retically, this  increased  ability  should  be  reached  by  pro- 
gressive rates,  if  not  also  with  differential  rates  on  account 
of  the  source.  Certainly,  from  the  viewpoint  of  the  govern- 
ment, there  has  been  no  increase  of  social  ability,  because 
no  increase  of  social  income ;  but  only  a  transference  from 
decedent  to  heir. 

True,  there  is  a  sense  in  which  the  whole  inheritance  may 
be  regarded  as  a  gratuitous  and  "accidental"  income,  there- 
fore increasing  by  its  full  amount  the  ability  of  the  heir.  If 
this  is  the  correct  view,  then,  logically  and  justly,  this  income 
should  be  treated  like  other  incomes  of  the  same  class.  If 
this  is  the  only  basis  and  justification  of  the  tax,  there 
should  be  the  same  principle  of  rates  that  is  applied  to  other 
incomes,  no  allowance  being  made  for  degrees  of  relation- 
ship. But  this  is  seldom  advocated  in  theory,  and  is  nowhere 
applied  in  practice.  If,  indeed,  this  theory  be  true,  then  are 
the  existing  arbitrary  rates  and  distinctions  of  relationship 
both  illogical  and  unjust.  The  fact  that  they  are  both  justi- 
fied and  practiced  is  evidence  that  the  "  accidental  income  " 
theory  is,  at  least,  not  the  only  consideration  in  the  inherit- 
ance tax.  The  theory  at  least  assumes  that  the  true  tax  prin- 
ciple should  here  be  deviated  from  on  grounds  of  policy  or 

*  Seligman,  Essays,  p.  132,  and  West,  Tke  Inheritance  Tax,  p.  118. 


62  5]  PRACTICAL  JUSTICE  IN  TAXATION  289 

sentiment.  Whatever  truth,  therefore,  there  may  be  in  this 
theory  of  the  inheritance  tax,  it  is  not  a  theory  that  permits 
of  logical  application  in  practice.  It  needs,  too,  to  be  sup- 
plemented by  other  considerations. 

We  shall  not  attempt,  however,  to  discuss  the  various 
theories  of  the  inheritance  tax — cost  of  service,  value  of  ser- 
vice, co-heirship,  escheat,  etc.  All  of  them,  as  Dr.  West 
says,  contain  some  element  of  truth,  and  therefore  to  that 
extent  afford  some  justification  for  the  tax.  Not  only  is  this 
tax  justified  on  theoretical  grounds,  but  it  has  also  the  prac- 
tical merit  of  being  difficult  to  evade,  and  of  occasioning 
little  disturbance  of  industry ;  besides  being  less  oppressive 
and  less  reluctantly  paid  than  most  other  taxes.  Viewed  in 
all  of  its  aspects  it  forms  a  necessary  adjunct  to  any  scientific 
system  of  taxation.  We  cannot,  indeed,  quite  agree  with 
the  implication  in  the  statement  of  Dr.  West  that  "  no  tax  is 
better  adapted  to  replace  the  antiquated  personal  property 
tax,"  '  since  this  implies  substitution.  The  true  substitute  for 
these  antiquated  taxes  lies,  as  we  have  seen,  in  the  direction 
of  a  tax  on  corporations,  though  the  inheritance  tax  (on  per- 
sonal property)  may  well  be  used  as  supplementary  to  the 
corporation  taxes. 

In  the  above  outline  of  a  system  of  taxation  no  attempt 
has  been  made  to  exhaust  every  legitimate  source  of  public 
revenue,  but  only  to  indicate  the  main  features  of  a  scientific 
system  that  will  most  nearly  conform  to  the  theoretical  prin- 
ciples of  justice — a  tax  based  upon  ability,  so  far  as  this 
ability  is  measured  by  income.  We  have  omitted  a  discus- 
sion of  rates,  because,  as  we  have  said,  we  believe  that 
undfer  the  prevailing  sentiment  on  this  subject  this  is  not,  in 
this  country  at  least,  a  practical  question,  though  without 
the  progressive  rates  the  highest  ideals  of  justice  in  taxation 
must  remain  unattainable.     Of  the  principle  of  exemptions 

'West,  op.cit.,^.  132. 


290  JUSTICE  IN  TAXATION  626 

we  need  only  to  say  that  it  is  fairly  well  realized  in  practice, 
though,  as  previously  pointed  out,  we  beheve  that  there 
should  be  further  extensions  of  the  principle,  at  least  in 
some  cases,  in  order  to  correspond  to  the  progressively 
higher  standards  of  living.  There  is,  however,  another 
question  of  great  practical  importance,  which,  because  of  its 
immediate  bearing  upon  the  execution  of  such  a  system  as 
that  outlined  above,  is,  indeed,  an  essential  requisite  to  such 
a  system,  and  therefore  should  constitute  a  vital  part  of  it.  I 
refer  to  the  separation  of  state  and  local  taxes,  which  let  us 
in  conclusion  briefly  consider. 

2.  State  and  Local  Taxation.  The  importance  of  the 
separation  of  national,  state,  and  local  taxation  is  another  of 
those  financial  questions  upon  which  there  is  now  very  gen- 
eral agreement.'  This  granted,  the  question  arises:  On 
what  basis  should  the  distribution  of  taxes  be  made?  Ac- 
cording to  Professor  Bastable  it  cannot  be  made  on  the 
ground  of  a  difTerence  of  governmental  duties,  since  there  is 
no  correlation  between  these  duties  and  tax  systems.  Hence 
the  distribution  must  be  made  on  financial  and  economic 
grounds."  This  is,  no  doubt,  in  part  true.  But  in  this 
country,  at  least,  it  should  be  modified  by  the  more  correct 
view  of  Professor  Adams :  That  "  a  government  should 
select  for  purposes  of  taxation  those  industries  with  which 
it  holds  some  fundamental  or  constitutional  relations."  3  In 
other  words,  while  financial  and  economic  conditions  are  im- 
portant factors  in  determining  the  political  distribution  of 
taxes,  the  governmental  relation  to  the  industry  taxed  is, 
perhaps,  of  prime  consideration.  Indeed,  it  is  this  relation 
that  very  largely  determines  the  financial  conditions.  The 
principle  may  be  best  illustrated  by  calling  attention  to  the 

'  For  a  very  good  treatment  of  this  question  see  Adams,  Public  Finance,  ch. 
7.     Cf.  also  Bastable,  Public  Finance,  iii,  6. 

*  Bastable,  op.  cit..  pp.  367-8.  3  Adams,  op.  cil.,  p.  493. 


627]  PRACTICAL  JUSTICE  IN  TAXATION  29 1 

more  important  taxes  that  should  be  assigned  to  national, 
State  and  local  revenue. 

[i)  Natio7ial  Taxes.  The  revenue  system  of  our  national 
government  is  so  thoroughly  established  that  there  could  be 
only  a  speculative  interest  in  a  discussion  of  possible  reforms. 
At  the  very  outset  the  policy  was  adopted  of  relying  solely 
upon  indirect  taxes,  leaving  all  direct  taxes  for  the  States. 
At  first  it  was  thought  that  sufficient  revenue  could  be  ob- 
tained from  customs  duties,  but  it  was  very  soon  learned 
that  they  would  be  inadequate,  and  so  excise  duties  were 
added.  Only  twice  have  direct  taxes  been  resorted  to,  and 
with  the  exception  of  war  periods  customs  and  excises  (on 
spirits,  malt  liquors  and  tobacco)  have  been,  and  promise 
long  to  remain,  the  chief  source  of  national  revenue.  Nor  is 
this  without  much  reason.  For,  as  Professor  Adams  shows, 
not  only  do  they  meet  his  requirement  in  the  governmental 
selection  of  taxes,  but  they  also  give  realization  to  the  im- 
portant fiscal  principle  of  permanence  of  government  revenue. 
To  realize  the  other  important  principle — that  of  elasticity — 
Professor  Adams  would  have  a  national  tax  on  interstate 
commerce.  However  desirable  such  a  tax  may  be,  there 
would  seem  to  be  little  chance  of  its  adoption  in  the  near 
future. 

The  national  system  of  indirect  taxes  is  not  without  other 
important  merits.  For,  however  desirable  it  may  be,  from  a 
theoretical  point  of  view,  .that  the  citizen  should  pay  a  direct 
tax,  in  order  to  emphasize  his  responsibility  to  the  government 
and  make  him  watchful  over  expenditures,  there  can  be  no 
doubt,  as  we  have  seen,  but  that  a  dependency  upon  a  direct 
tax  would  greatly  cripple  the  efficiency  of  the  government. 
Moreover,  the  rather  indirect  relation  of  the  citizen  to  the 
national  government,  at  least  his  remoteness  from  its  opera- 
tions, goes  far  to  justify  the  indirect  tax  for  national  pur- 
poses.    Again,  if  we  suppose  the  tax  to  retain  anything  of 


292  JUSTICE  IN  TAXATION  [628 

permanency  it  will  be  found,  in  the  long  run,  fairly  to  dis- 
tribute the  burden  according  to  ability;  so  far,  at  least,  as 
ability  is  determined  by  consumption. 

(2)  State  Taxes.  For  the  same  reason  that  customs 
duties  and  excise  taxes  were  assigned  to  national  revenue — 
that  of  the  peculiar  relations  of  the  industry  taxed  to  the 
government — there  should  be  assigned  to  State  revenue  the 
taxation  of  corporations  and  quasi-public  monopolies.  Be- 
ing dependent  upon,  and  under  the  regulations  of,  the  State 
governments,  there  is  a  peculiar  fitness  in  their  taxation  for 
the  purposes  of  State  revenue.  Such  a  tax  would  be  diffi- 
cult to  evade,  and  would  have  the  fiscal  importance  of  being 
easily  and  economically  collected.  At  the  same  time  it 
would  meet  the  requirements  of  permanence  and  elasticity. 
Moreover,  under  conditions  similar  to  those  assumed  in  the 
case  of  customs  and  excises,  there  would  be  a  fair  distribu- 
tion of  the  burden. 

To  these  taxes  might  also  be  added  the  inheritance  tax. 
Certainly,  upon  the  principles  set  forth  above,  the  inheritance 
tax  does  not  properly  belong  to  the  system  of  national  taxes. 
So  far  as  the  inheritance  tax  is  regarded  as  a  fee  for  cost  or 
value  of  service  in  the  transference  of  property,  it  belongs 
more  properly  to  county  taxes ;  but  so  far  as  regarded  on 
the  principle  of  escheat,  of  co-heirship,  or  of  guaranteeing 
the  right  of  inheritance,  it  is  very  properly  a  State  tax.  As 
grounded  upon  the  idea  of  compensation  or  of  ability,  it 
should  be  distributed  between  State  and  local  governments. 
On  the  ground  of  the  dependence  of  the  inheritance  upon, 
and  its  control  and  protection  by,  the  government,  the  in- 
heritance tax  belongs,  again,  more  properly  to  the  system  of 
State  taxes.  On  fiscal  and  economic  grounds  there  is  also 
reason  for  this  disposition  of  the  inheritance  tax.  Upon  the 
whole,  the  inheritance  tax  should  go  into  the  State  revenue, 
except,  perhaps,  such  portion  as  might  be  necessary  for  the 


629]  PRACTICAL  JUSTICE  IN  TAXATION  293 

probate  fees,  or  other  expenses  incidental  to  the  conveyance. 
But  we  fail  to  see  any  good  reason  why  this  tax  should  be 
assigned  to  any  specific  purpose,  such  as  State  education,  as 
suggested  by  Professor  Adams.' 

With  these  two  sources  it  is  beheved  that  ample  revenue 
would  be  supplied  for  all  of  the  necessary  expenses  of  the 
State  governments.  As  Dr.  West  says:  "The  experience 
of  New  York  with  the  inheritance  tax  and  the  experience  of 
a  number  of  States  with  corporate  taxes  show  that  by  these 
two  methods  of  taxation  alone  most,  if  not  all  of  the  State 
governments,  could  pay  all  of  their  expenses,  leaving  all 
taxes  on  property  to  local  political  divisions."  =" 

(3)  Local  Taxes.     We  have  left,  then,  for  local  taxation, 
land,  houses,  manufacturing  plants  and  real  estate  generally ; 
also  tangible  personal  property  and  municipal  licenses  and 
franchises.     Since  county  expenses  are  mainly  devoted  to 
the  improvement  of  roads  and  bridges,  which  add  materially 
to  the  value  of  the  surrounding  lands,  it  is  very  fitting  that  a 
land    tax    should    constitute    the    chief    source    of    county 
revenue.     For  township  purposes  there  is  the  tangible  per- 
sonalty and  real  estate,  including  the  real  estate   of  corpora- 
tions.    While  for  municipal  expenses  we  have,  in  addition 
to  the   property  taxes  of  townships,  municipal  licenses  and 
franchises— such   as  those  of   street   railways,  water  works, 
lighting  plants,  etc.     A  special  justification  for  this  assign- 
ment of  local  taxes  is   not  needed,  since   it  is  directly  in- 
volved in  the  principles  of  distribution  of   national  and  state 
taxes.        If    further    justification    were     needed    it    might, 
perhaps,  be    found    in   the   fact  that   in   local    taxation,   as 
distinct  from  national  or  state  taxation,  there  is  some  justi- 
fication in  the  application  of  the  benefit  principle  as  a  basis 
of  taxation.     It  may  be  added,  too,  that  with  such  a  system 
of  local  taxes,   where   each   political  unit   is   fiscally   inde- 
1  o/.  a/.,  p.  505.  ^C?/.«V.,p.  132. 


294  JUSTICE  IN  TAXATION  [630 

pendent,  there  will  be  an  end  to  the  evil  of  political  units 
shifting  their  burdens  upon  each  other  by  undervaluations. 

The  above  outline  of  what  is  conceived  to  be  a  rational 
system  for  the  political  distribution  of  taxes,  it  must  be 
admitted,  is  not  wholly  free  from  arbitrariness.  For  in  spite 
of  the  more  or  less  clearly  marked  political  divisions,  the 
parts  of  our  federal  system  are  so  intimately  connected,  and 
so  closely  interdependent,  that  the  relationship  of  the  citizen 
to  one  of  the  units  involves  his  relationship  to  each  higher 
and  lower  unit  in  the  system.  There  is,  nevertheless,  a 
difiference  that  is  substantial  enough  for  forming  a  legitimate 
basis  for  a  political  division  of  taxes.  If  our  division  is  in 
contradiction  with  any  of  our  previous  principles,  it  is  with 
that  principle  which  declares  that  ability  is  the  only  true 
basis  of  taxation,  for  the  division  is  apparently  very  largely 
based  upon  the  principle  of  benefits.  As  to  local  taxation, 
it  is  admitted  that  there  is  some  validity  in  the  benefit  prin- 
ciple. But  carefully  examined  it  will  be  seen  that  the  con- 
tradiction is  little  more  than  an  apparent  one. 

There  can  be  no  doubt  but  that  it  is  the  fundamental 
thought  in  taxation  that  every  individual  should  contribute 
towards  the  support  of  the  political  units  with  which  he 
stands  in  some  direct  relation,  and  should  contribute  accord- 
ing to  his  ability.  That  such  a  result  would  follow  from 
such  a  system  of  taxation  as  that  outlined  in  the  present 
chapter,  taken  in  connection  with  its  political  distribution, 
we  believe  that  a  careful  analysis  of  probable  results  would 
make  sufficiently  clear.  But  even  though  it  may  not  give 
realization  to  theoretical  principles  in  every  particular,  it 
offers  so  many  practical  advantages — realizing  uniformity 
and  equality,  as  well  as  having  political,  economic  and  fiscal 
advantages — that  it  may  well  be  considered  as  offering  the 
highest  form  of  the  practical  ideal;  at  the  same  time  that  it 
conforms  substantially  to  the  theoretical  ideal.     The  effect 


631]  PRACTICAL  JUSTICE  IN  TAXATION  295 

of  such  a  system  upon  the  ehmination  of  those  personal  and 
political  factors  that  are  the  source  of  so  much  inequality — 
fraud,  corruption,  undervaluations,  evasions,  etc. — would  go 
far  to  promote  the  conditions  of  an  ideal  equality,  the  ends 
of  a  complete  justice. 

Finally,  there  are  hopeful  signs  that  such  a  system  is  not 
always  to  remain  a  mere  fiscal  ideal.  The  abuses  and  in- 
equalities of  present  methods  are  becoming  so  flagrant  that 
political  parties  are  being  forced  to  take  cognizance  of  them 
and  to  consider  remedies  for  the  solution  of  the  evil.' 
normal  schools  in  the  United  States  and  other  countries. 

The  second  group  hold  that  the  most  effective  results  are 
Nevertheless,  the  ideal  is  far  from  attainment.  This  is  made 
inevitable  on  account  of  the  great  number  of  our  states, 
their  varied  economic  conditions,  and  the  natural  conserva- 
tism of  political  parties.  But  until  some  such  system  as  that 
outlined  in  the  present  chapter  is  put  into  practice,  we  can 
hope  for  only  makeshift  Teforms.  With  such  a  system  once 
in  operation  we  shall,  at  least,  have  taken  a  long  step  toward 
realizing  the  ideal  ends  of  justice  in  taxation,  and  shall  have 
attained  a  close  approximation  to  justice,  which  is  all  that 
can  be  hoped  for  in  human  affairs. 

^  In  the  State  campaign  in  Ohio,  in  the  fall  of  1901,  Mr.  Tom  L.  Johnson,  in 
behalf  of  the  Democratic  party,  made  the  issue  upon  the  equalization  of  taxes. 
The  present  writer  took  occasion  to  write  a  letter  for  a  Cleveland  paper,  briefly 
advocating  the  system  set  forth  in  this  chapter.  In  reply,  letters  were  received 
from  the  leader  of  the  Republican  party  and  from  Mr.  Johnson,  while  a  Demo- 
cratic candidate  for  the  legislature  made  a  public  reply.  In  every  case  it  was  con- 
tended that  the  system  advocated  in  my  letter  was  essentially  the  same  as  that  for 
which  they  stood  committed.  In  the  next  legislature  the  Democratic  party  did 
attempt  to  carry  out  some  tax  reforms  along  these  lines,  but  their  efforts  were 
negatived  by  the  Republican  majority. 


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Page    97,  Note  i,  for  73  read  86.     Note  2,  for  75  read 
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Page  134,  Note  i,  for  43  read  56. 
Page  140,  Note  2,  for  92  read  104. 
Page  141,  Note  2,  for  53  read  66,  note  2. 
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Page  174,  Note  I,  for  143  read  155. 


VITA 

The  writer  of  the  following  monograph  received  his  pre- 
paratory and  collegiate  education  at  Antioch  College,  from 
which  institution  he  was  graduated  in  1879.  From  the  same 
college  he  received  the  degree  A.  M.  in  1884.  In  1885  he 
went  to  the  University  of  Michigan,  taking  two  years  of  post- 
graduate work  at  that  institution.  The  major  work  consisted 
of  Philosophy  and  Ethics,  and  was  taken  under  Professors 
Morris  and  Dewey.  The  two  minors  were  Economics  and 
Pedagogy,  the  former  being  under  Professor  Adams  and  the 
latter  under  Professor  Payne, 

In  the  fall  of  1890  the  writer  entered  the  School  of  Political 
Science  in  Columbia  University  and  pursued  two  years  of  post- 
graduate work  in  that  department  of  the  University.  The 
major  study  at  Columbia  was  Finance,  and  the  two  minors 
Social  Science  and  Administrative  Law.  The  major  work  was 
under  the  direction  of  Professor  Seligman,  the  minors  under 
the  direction  of  Professors  Mayo-Smith,  Giddings,  and 
Goodnow. 

During  the  second  year  at  Columbia  the  writer  held. a 
Seligman  Scholarship  in  Economics,  and  at  the  end  of  the 
second  year  was  given  a  University  Fellowship  in  Finance  for 
the  year  1892-3.  In  the  fall  of  1892  he  received  the  appoint- 
ment of  Assistant  in  Economics  and  thereupon  resigned  the 
University  Fellowship.  The  position  of  Assistant  in  Eco- 
nomics was  held  for  two  years.  In  1894  the  writer  went  to 
Western  Reserve  University,  Cleveland,  Ohio,  as  Associate 
Professor  of  Political  and  Social  Science.  In  1902  he  was 
elected  as  acting  executive  of  Antioch  College,  Yellow  Springs, 

301 


302  VITA 

Ohio,  under  the  title  of  Dean  of  Antioch  College,  having  also 
the  Professorship  of  Philosophy  and  of  Political  and  Social 
Science. 

The  previous  publications  of  the  author  of  this  Monograph 
are  the  following  : 

"The  Significance  of  the  Individual,"  published  in  Seed  Time, 
Oct.,  1893 — a  publication  of  the  London  Fabian  Society. 

Two  articles  on  "Tax  Reform  "  pubhshed  in  the  Cleveland  Plain 
Dealer,  Oct.,  1901. 

Reviews  in  the  Political  Science  Quarterly,  viz. : 

Vol.  VI,  No.  2  : 

Crime  and  Its  Causes,  by  William  D.  Morrison ;  The  Elmira  Re- 
formatory, by  Alexander  Winter;  The  Death  Penalty,  by 
Andrew  J.  Palm. 

Vol.  VII,  No.  2  : 

Trade  Unionism,  New  and  Old,  by  George  Howells ;  Problems  of 
Poverty,  by  John  Hobson. 

Vol.  VIII,  No.  4  : 

La  Riduzione  delle  Ore  di  Lavoro  e  i  suoi  Effetti  Economici,  by 
Riccardo  dalla  Volta ;  La  Legislation  Internationale  du 
Travail,  by  Paul  Boilley ;  Guide  Pratique  pour  I'Application  de 
la  Participation  aux  Benefices,  by  Charles  Robert. 

Vol.  IX,  No.  I  : 

Teoria  della  Trasformazione  dei  Capitali,  by  Camillo  Supino. 

Vol.  XIII,  No.  2  : 

La  Questione  dei  Negri,  by  Gennaro  Mondaini. 

Vol.  XIV,  No.  2  : 

Saggi  di  Economia  e  Finanze,  by  A.  de  Viti  de  Marco. 

Vol.  XV,  No.  4  : 

La  Teoria  del  Salario,  by  G.  Ricca-Salerno. 


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